IRS NOTICE ADDRESSES IMPROPER DEDUCTIONS FOR CONSERVATION DONATIONS: The Internal Revenue Service advised taxpayers that it will disallow improper charitable contribution deductions for transfers of easements on real property to charitable organizations and for transfers of easements in connection with purchases of real property from charitable organizations.
Taxpayers who claim improper charitable contribution deductions for such transfers may be subject to accuracy-related penalties, the agency said.
“We’ve uncovered numerous instances where the tax benefits of preserving open spaces and historic buildings have been twisted for inappropriate individual benefit,” said Commissioner Mark W. Everson. “Taxpayers who want to game the system and the charities that assist them will be called to account.”
In Notice 2004-41, the IRS said that it is aware that some taxpayers are claiming inappropriate charitable deductions for easement transfers that don’t qualify as qualified conservation contributions, or are claiming deductions for amounts that exceed the fair market value of the donated easement. In addition, the IRS said that some taxpayers are claiming inappropriate charitable contribution deductions for cash payments or easement transfers to charitable organizations in connection with the taxpayers’ purchases of real property.
The IRS may impose penalties on promoters, appraisers and others involved in the transactions. In appropriate cases, the IRS may challenge the tax-exempt status of the charitable organization, based on the organization’s operation for a substantial nonexempt purpose or impermissible private benefit.
BLOCK FORMS ALLIANCE TO EDUCATE LOW-INCOME TAXPAYERS: Tax prep giant H&R Block has forged a three-year alliance with a community organization as part of an effort to educate low- and moderate-income taxpayers.
Block has teamed with the Association of Community Organizations for Reform Now to create outreach programs that will focus on increasing awareness and understanding of the tax credits available to low- and moderate-income taxpayers.
“Nearly 4.3 million eligible taxpayers missed out on billions of dollars by neglecting to claim the earned income tax credit in 2002 alone,” said Jeff Yabuki, H&R Block executive vice president and chief operating officer. “ACORN connects with communities nationwide in ways that will help alert people to this credit and ensure that more of that money gets into the pockets of low- and moderate-income consumers.”
Block will provide the tax and financial expertise and funding to develop the educational materials. ACORN will implement the programs through its nationwide network of chapters and its resources within community organizations.
The project will also expand both organizations’ efforts to help connect families to other programs, including job training, food stamps and state health benefits that are often missed by eligible low- and moderate-income families.
IRS WARNS AGAINST VIRGIN ISLANDS SCHEME: The Treasury Department and the Internal Revenue Service have issued a notice that cautioned taxpayers against promoters who market arrangements to lower taxes pursuant to the special rules applicable to the U.S. Virgin Islands.
The arrangements involve taking positions that are highly questionable with respect to claims that the taxpayer resides in the U.S. Virgin Islands and that the taxpayer’s income is from sources there or is connected with a business there.
Notice 2004-45 targeted an arrangement that involves running a taxpayer’s salary or business income through a U.S. Virgin Islands entity such as a limited partnership. Promoters typically advise a taxpayer that she can become a U.S. Virgin Islands resident by establishing certain contacts with the islands, even while continuing to live and work in the U.S. Their salary is funneled through a partnership, which purportedly secures a reduction of up to 90 percent in U.S.V.I. income tax liability under the U.S.V.I. Economic Development Program.
The IRS said that it will challenge these positions and other similar claims on the grounds that they lack economic substance or that they have no purpose other than tax avoidance or evasion.
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