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Thursday April 15, 2021

Washington News

Washington Hotline

$26 Billion to Social Security Beneficiaries

On April 7, 2021, the Internal Revenue Service and the U.S. Department of the Treasury announced that another 25 million Economic Impact Payments (EIPs) had been distributed. The total distribution now is 156 million payments with value over $372 billion.

The fourth batch of payments included 19 million checks or deposits worth $26 billion. This block of payments went to Social Security beneficiaries who did not file a 2019 or 2020 tax return and did not use the Non-Filers tool on IRS.gov.

There were also three million payments worth $5 billion that went to Supplemental Security Income (SSI) beneficiaries and nearly 85,000 payments worth $119 million to Railroad Retirement Board (RRB) recipients.

The IRS is reviewing data from the Department of Veterans Affairs (VA) about individuals who receive Compensation and Pension (C&P) payments, but do not normally file a tax return. It will process these filings and make payments on April 14. The VA beneficiary information should be available next week on the Get My Payment tool.

85% of EIPs have been made through direct deposit. This is the most rapid and secure method for payments. There have been 3.1 million Direct Express cardholders who received electronic payments to their accounts. Many of these individuals do not have bank accounts to receive payments.

The IRS continues to gather information about the homeless, the rural poor and other individuals who have not yet received an Economic Impact Payment.

A fact sheet on the Economic Impact Payments was also published this week. Many individuals received multiple letters from the IRS. After issuing an EIP, the IRS typically mails a notice to the recipient within 15 days. These notices should be retained with your tax records.

If an individual makes a mistake in calculating a 2020 Recovery Rebate Credit, will the IRS fix the problem or reject the return? The IRS notes that it will attempt to calculate the correct Recovery Rebate Credit, update the return and include the additional amount in a tax refund.

If you are eligible for a 2020 Recovery Rebate Credit but did not claim it on your tax return, it will be necessary to file an amended return. The worksheet on page 59 of the 2020 instructions for IRS Form 1040 will help you determine the correct amount for the credit.

Made in America Tax Plan


President Biden has proposed a comprehensive change in the tax structure of American businesses. This week, the Department of the Treasury published an analysis of the complete tax plan.

There are several primary goals for the Made in America tax plan. It is designed to gather revenue to fund infrastructure and other new investments. A second goal is to create a fairer tax system that rewards workers and labor. Finally, it hopes to reduce incentives that would lead corporations to move businesses offshore.

The Treasury analysis noted, "The current corporate income tax regime contains incentives for corporations to shift their production and profits overseas. Declining corporate tax revenues hinder the ability of the United States to fund investments in infrastructure, research, technology, and green energy. The Made in America tax plan would fundamentally reorient corporate taxation to reverse this legacy."

There are several specific proposed changes that will restructure the taxes paid by corporations in America. These include a change in the corporate tax rate, efforts to reduce the incentive to shift profits overseas, minimum taxes to ensure all corporations pay a substantial tax and replacing subsidies for fossil fuel with clean energy incentives.
  1. Corporate Income Tax Rate — The corporate tax rate would increase from 21% to 28%. This is a rate that is seven points below the rate that existed from 1990 until 2017. This change is aimed at increasing the percentage of the economy attributable to corporate tax revenue, so that the United States will be more comparable to other advanced global economies.
  2. Reduce Profit Shifting — One objective for some multi-national corporations has been to reduce taxes through an inversion. Prior to the Tax Cuts and Jobs Act, several large multinational corporations moved their headquarters from America to a foreign nation to reduce their taxes. The Made in America plan attempts to reduce the incentives for overseas inversions by ending a tax exemption on the first 10% of foreign assets and calculating a 21% minimum tax on a country–by–country basis. This would reduce the ability for corporations to move income and assets to tax havens and reduce worldwide tax payments.
  3. Corporate Minimum Book Tax — Each year, over 200 U.S. companies report income of $2 billion or more. Through various tax strategies, some of these companies pay zero tax. The Made in America plan would create a minimum tax of 15% of book income. This is generally the profit amount that is reported to investors. Even if the corporation has zero federal tax liability under the normal provisions, it would pay the additional 15% minimum tax on book income.
  4. Reduce Fossil Fuel Subsidies and Incentivize Clean Energy —To reduce carbon emissions, the plan calls for the elimination of oil and gas subsidies. By reducing these subsidies, the United States will be able to subsidize solar, wind and other types of clean energy.
The Treasury report concludes, "The Made in America tax plan . . . would create novel instruments that reject the long–held notion that tax competition and profit shifting are inevitable features of a globalized economy because of the mobility of capital. The plan would eliminate biases in current tax law that favor offshoring economic activity and would largely put an end to corporate profit shifting with a country–by–country minimum tax."

Representative Kevin Brady (R–TX) is the Ranking Member of the House Ways and Means Committee. He indicated that with the Made in America tax plan, "massive tax hikes will be shouldered by American workers and small businesses."

Brady predicts that the plan will incentivize corporations to move both jobs and taxes overseas. This will reduce economic opportunity for American workers. The plan is based on the assumption that other nations are willing to pass minimum taxes on their corporations. Brady stated, "Foreign countries will never raise their taxes as high" as the proposed changes. Finally, Brady notes that under the corporate tax reductions of the Tax Cuts and Jobs Act, the U.S. "grew faster than the rest of the world."

Editor's Note: Your editor does not take a position on the Made in America Act. This information is offered as a service to our readers.

Deduction Denied for Partially Completed Form 8283


In Luke Joseph Chiarelli v. Commissioner; No. 452-16; No. 2115-18; T.C. Memo. 2021-27, the Tax Court denied charitable deductions for gifts of personal property and assessed penalties. The denial was due to the failure of the donor to complete IRS Forms 8283, Noncash Charitable Contributions.

Luke Joseph Chiarelli is an attorney admitted to practice in the State of Wisconsin. His mother passed away on August 16, 2012 and the majority of her personal property was bequeathed to Chiarelli. He hired Tarquinio F. Durante of Cedarburg Auction and Estate Sales, LLC, to itemize and prepare appraisals of the property. He and Durante agreed that most of the personal property would be donated to nonprofits.

During years 2012, 2013 and 2015, Chiarelli made gifts of personal property and claimed charitable deductions of $89,110, $93,087 and $77,300. IRS Form 8283 directed him to list groups of similar items with value of $500 or more. It mandated listing each asset, the date of acquisition, the manner of acquisition, the cost basis and the method used to determine fair market value. Chiarelli did not enter the required information in Section A of Form 8283.

Section B of Form 8283 required detailed information for groups of items with value over $5,000. This included a summary of physical condition, the appraised fair market value, the date of acquisition, the manner of acquisition and the cost basis. Personal property donations must also be specified as "in good used condition or better". Chiarelli described the property as "miscellaneous household items" in "excellent" condition. He stated the property was acquired on "various" dates. Section B of Form 8283 was not signed.

After being notified by the IRS that his tax returns were being examined, Chiarelli submitted a letter and an appraisal prepared by Durante. These documents stated the property was given to Goodwill and The Salvation Army on "various" dates. Chiarelli did not have receipts from either Goodwill or The Salvation Army. He submitted additional information to the IRS, including Durante's identifying tax number. The additional information did not provide specific details about the value or condition of the various items.

The court noted that the general form was not completed as required. Taxpayer claimed that he "substantially complied" with the requirements. The IRS claimed that his compliance was not sufficient.

Regulation 1.170 A–13(b)(1) requires the donor to obtain a receipt from the donee organization. If the donor does not have a receipt, he or she must record the name and address of the nonprofit, the date and location of the gift, a description of the property, the fair market value of the property, the method used to determine the fair market value and a copy of any appraisal."

Chiarelli offered no detail, no receipts from Goodwill and no receipts from The Salvation Army. He was therefore required to maintain reliable written records. Because he did not have records, the deduction was denied.

A gift valued at $250 or more, requires a "contemporaneous written acknowledgment" (CWA) from the nonprofit. See Sec. 170(f)(8)(A). Chiarelli did not have the CWA as required.

Similar items are considered a group and must be specifically described if they exceed a $500 threshold. The description must include an itemized list of the property, the manner and approximate date of acquisition and the cost or other basis. Chiarelli did not provide information on groups of items with value over $500.

If a group of similar items exceeds a $5,000 threshold, there must be a "qualified appraisal" of each donated item. Reg. 1.170A–13(c)(2). The appraisal by Durante did not include the physical condition and age of the items, the qualifications of the appraiser or a statement that the appraisal was prepared for income tax purposes. The additional submissions by taxpayer are not sufficient to cure the defect. Because the taxpayer did not comply with the requirements, the deductions were denied.

The IRS also imposed a 20% accuracy–related penalty under Section 6662(c). The taxpayer claimed he substantially complied and therefore was not subject to the penalty. However, the IRS Forms 8283, "were almost entirely incomplete and lacked signatures from the donor, the donee and the appraiser." Because the taxpayer did not make a reasonable attempt to provide gift information and he is an attorney, he was found liable for the accuracy–related penalties.

Applicable Federal Rate of 1.0% for April -- Rev. Rul. 2021-7; 2021-14 IRB 1 (15 March 2021)


The IRS has announced the Applicable Federal Rate (AFR) for April of 2021. The AFR under Section 7520 for the month of April is 1.0%. The rates for March of 0.8% or February of 0.6% 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 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published April 9, 2021
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