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Thursday August 13, 2020

Washington News

Washington Hotline

IRS Reveals Revamped Tax Withholding Tool

For many years, the IRS has offered the "Withholding Calculator," an online tool to assist taxpayers in performing a "Paycheck Checkup." After listening to taxpayer feedback, the IRS has replaced the Withholding Calculator with a new tool designed to improve taxpayers' user experience.

In IR-2019-139, the Service announced the release of the "Tax Withholding Estimator." This new calculation tool may be accessed at and offers taxpayers an updated, more user-friendly interface. The new Tax Withholding Estimator is designed to be used on mobile devices as well as personal computers.

Taxpayers with two-income households or those who have encountered a change in life circumstances may benefit from performing a Paycheck Checkup. The Withholding Calculator was not known for its ease of use.

"The new estimator takes a new approach and makes it easier for taxpayers to review their withholding," said IRS Commissioner Chuck Rettig. "This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships."

The new Tax Withholding Estimator incorporates plain language throughout, improved navigation, a progress tracker and expandable help topics. The new tool provides an estimate of users' anticipated tax obligations, their expected withholding and an estimated underpayment or overpayment.

The results page also includes guidance for taxpayers who wish to adjust their withholdings to change their expected tax withholding amount. Users may select either "get my balance close to zero" or "I'd like to get a refund." Each option provides a two-step process, guiding taxpayers on the necessary entries on Form W-4.

Security Summit Tips for Tax Professionals

Since 2015, the IRS has partnered with various state and federal government tax authorities and members of the private sector in what is known as the Security Summit. The Security Summit periodically releases checklists offering data security tips for tax professionals.

The IRS and the Security Summit published the "Taxes-Security-Together" Checklist in July of this year. In the weeks following the release of the Checklist, the IRS has published a series of articles highlighting various checklist items.

In IR-2019-140, the IRS published tips on recognizing the signs of client data theft. These tips serve as a reminder that cybersecurity threats are constantly evolving and that there are a number of identity theft clues tax professionals should keep in mind.

"Learning the signs of identity theft is critical for anyone handling taxpayer data," said IRS Commissioner Chuck Rettig. "It can be as subtle as an unusually slow computer system or as obvious as multiple clients unexpectedly receiving the same IRS notice. Paying attention to these details is critical, and fast action alerting the IRS and calling in a security expert can help protect taxpayers and your business."

The Security Summit urges tax professionals to look out for the following warning signs:
  • Clients' e-filed tax returns are rejected because returns with the same Social Security number have already been filed for the year;
  • Taxpayers receive taxpayer authentication letters for a submitted return even though they have not yet filed their returns;
  • Clients receive refunds without filing a return;
  • Clients receive tax transcripts without first requesting them;
  • Taxpayers who have created an IRS Online Services account are notified that their account has been accessed or disabled;
  • Taxpayers are notified that an IRS Online Services account has been opened in their name;
  • The tax professional has more returns filed with his or her Electronic Filing Identification Number (EFIN) than clients;
  • Clients receive fraudulent emails purporting to be from the tax professional's firm;
  • Computers on the tax professional's network are running slowly;
  • Changing inputs and cursor movements on the tax professional's computer;
  • Members of the tax professional's office are locked out of the firm's network computers.
Tax preparers should take note if their clients' returns are rejected due to previously filed returns with the same Social Security number (SSN). Scammers often use an illegally obtained SSN and attempt to file a fraudulent return to receive a refund before the identity theft victim can file.

Another sign that the tax preparer's data has been breached is if the tax preparer's clients receive IRS transcripts by mail without having ordered them. Fraudsters will often use stolen data to access the IRS' "Get Transcript" system. Attempts to gain access may result in either a letter from the IRS or a transcript the taxpayer never requested.

The IRS also warned about "spear phishing" scams, which scammers will use to gain access to tax preparers' networks. Spear phishing occurs when someone sends an email using a name of someone the recipient knows and trusts in order to steal sensitive information. Tax preparers may notice responses to emails that they did not send, which could indicate a potential spear phishing attack.

The Security Summit recommends that tax professionals review a weekly report of the returns filed using the firm's EFIN during tax filing season. Tax preparers who notice a discrepancy in their numbers should contact the IRS e-Help Desk. If tax preparers notice any sign of identity theft, they should contact their local Stakeholder Liaison. The IRS maintains a list of Stakeholder Liaison contact information at

Donor Disclosure Rule Challenged

Under Sec. 6330(a), most nonprofit organizations are required to report the names and addresses of donors who made gifts in excess of $5,000 in a taxable year. Other organizations, such as some fraternal organizations or social clubs are required to report donors who reach a threshold of over $1,000 in donations each year. In Rev. Proc. 2018-38, the Service removed the donor disclosure requirement for nonprofits that are not Sec. 501(c)(3) organizations. All nonprofits must retain donor information and such information must be disclosed upon the Service's request.

Montana Governor Steve Bullock and the Montana Department of Revenue challenged Rev. Proc. 2018-38 by filing suit against the Service shortly after the guidance was published. The State of New Jersey joined as a plaintiff in the lawsuit.

On June 5, the Justice Department argued its motion to dismiss, while the states argued a motion for summary judgment on the grounds that Rev. Proc. 2018-38 violated the Administrative Procedure Act (APA).

The motion to dismiss attacked the States' standing. However, the U.S. District Court for the District of Montana held that the plaintiffs' standing was appropriate to challenge the Revenue Procedure. The District Court issued its Order on July 30. (Bullock v. IRS, No. 4:18-cv-00103 (D. Mont. 2019)).

The Order, issued by Judge Brian Morris, granted the plaintiffs' motion for summary judgment. The Order held that the Service violated the APA's requirement of notice and comment prior to adoption of the rule. The Service issued Rev. Proc. 2018-38 without a public notice-and-comment period.

The District Court held that Rev. Proc. 2018-38 was not an interpretive rule because it "effectively amends the previous rules that required tax-exempt organizations to file substantial-contributor information annually." The District Court found that Rev. Proc. 2018-38 was a legislative rule that must follow procedures of a public notice-and-comment period prior to enactment. Thus, the District Court set aside Rev. Proc. 2018-38 as adopted by the IRS.

Editor's Note: Although the District Court issued a ruling, the Justice Department may appeal the Order.

Applicable Federal Rate of 2.2% for August -- Rev. Rul. 2019-17; 2019-32 IRB 1 (17 July 2018)

The IRS has announced the Applicable Federal Rate (AFR) for August of 2019. The AFR under Section 7520 for the month of August is 2.2%. The rates for July of 2.6% or June 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 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published August 9, 2019
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