By Emma Kerr, U.S.News, Oct. 14, 2021,

By Megan Gorman, Forbes, December 11, 2021

Ah, December. It always feels like this month sneaks up on us. For many, it is the last chance to impact their tax planning. But in the year-end rush, there is a lot to consider.

The past 18 months have been a wild ride in the capital markets. From the lows of March 2020 to the highs of the recent months, investors have done incredibly well. Further investors who fearlessly entered the crypto market a few years back might find themselves with significant gains.

And that is where taxes can become tricky.

“Think of cryptocurrency like a stock. Sell it in less than a year at a gain, and it is ordinary income. More than a year, and it’s taxed at long-term capital gains rates,” explains Adam Markowitz, EA and Vice President, Howard L Markowitz PA, CPA

While recognizing a gain might seem like the only option available to crypto investors, a unique tax planning opportunity is available:  the ability to use your cypto holdings to donate to charity. As crypto becomes commonplace in investment portfolios, more donor advised funds (DAFs) and charities are accepting these holdings in their donations.

For many, this will be a significant planning opportunity, but just because it is permissible, doesn’t mean it’s straightforward. There are a few rules of the road that crypto investors must consider when donating to charity.

Tax Mechanics

Before we get into how crypto can be donated, it is important to understand the mechanics of donating non-cash assets to charities.

“In addition to cash donations, individuals, partnerships, and corporations are allowed a charitable deduction on their tax returns for donated property,” explains Lorilyn Wilson, CPA & CEO of Lookahead LLC and DueNorth PDX.

Publicly traded securities are commonly-donated non-cash items. In this situation, investors can get a special two-part tax benefit. First, they do not have to recognize the capital gain; second, they get a charitable deduction when the holdings go to the charity or donor-advised fund.

“But there are rules. For property donated with a combined worth of more than $500 (think Goodwill donations, cars, etc.), an additional form called Form 8283 must be filed as well,” says Wilson.

For publicly traded holdings, only Part I of the form is required.

“The IRS requires you take the charitable deduction at the fair market value of the property being donated – and this is the form used to do just that,” says Wilson. “Questions such as the name of the organization donated to, property description, date property was acquired and contributed, how much it cost, and what the resale value is – is all information gathered on this form.”

Donating stocks can be a powerful tax management tool, but charities and DAFs have historically been nervous about crypto. Things are changing and the door for donating crypto is now open.

Be Aware of Appraisal Rules

Donating crypto is not as straightforward as donating publicly traded stocks. The world of crypto has not been transparent and the rules around donations reflect that.

“Now let’s say someone has decided to donate their crypto or other non-publicly traded securities. Could they artificially inflate the value of their donated property to get a higher deduction and pay less in taxes? As usual, the IRS is one step ahead of them,” says Wilson.

That’s why it is important to be aware of another set of rules surrounding Form 8283. Unlike publicly traded securities, a donation of crypto currency that exceeds $5,000 will require a qualified appraisal. Neither the IRS nor the SEC has taken any official position to treat cryptocurrencies as securities. The IRS has designated cryptocurrency as property and not currency.

A qualified appraisal must meet IRS requirements, including the need to use a qualified appraiser who has met education and experience requirements. Qualified appraisers are usually licensed or certified in the state in which the property is located.

Further, the appraisal must be done no more than 60 days prior to the donation and no later than the due date of the tax return including extensions. The appraisal is reported on Form 8283 and the appraiser is required to sign the form. No appraiser? No deduction.

It can be challenging to find a crypto appraiser, but as the technique is in greater demand, there are more resources available. Investors who use a donor advised fund like Schwab Charitable or Fidelity Charitable, may also be able to draw on their expertise.

Investors should anticipate that they will spend approximately $500 to $1,000 on appraisal fees, but the tax benefit may be worth it.

Check With Your Tax Professional

Ultimately, crypto investors should seek help from their tax professional to make sure that they take the appropriate steps in donating crypto to a DAF. It could mean the difference between a great tax planning experience and the disappointment of a disallowed deduction. (https://www.forbes.com/sites/megangorman/2021/12/11/crypto-investors-need-to-know-this-unique-tax-planning-opportunity/?sh=160453632267)

By De Lon Harris
CL-21-28, September 27, 2021

Tackling complex tax compliance issues is something I take great pride in doing as part of my job as the Commissioner for the Small Business/Self Employed (SB/SE) Examination division. I also see it as my responsibility to make sure my organization helps taxpayers navigate those complex issues and provides the tools that we have available for them to be successful and compliant business owners.

One such evolving and complex issue my organization has been focused on is the tax implications for the rapidly growing cannabis/marijuana industry. The specific rules and regulations regarding how it is taxed at the federal level provides the IRS an opportunity to promote voluntary compliance, not only through audits, but also through outreach and education. At last count, 36 states plus the District of Columbia have legalized marijuana for recreational or medicinal use, or both. These states, such as California, Washington and Colorado provide tax guidance for businesses and we strongly encourage industry members to remain compliant with state taxes as well. And while there are 14 states that still ban cannabis use, we expect both unlicensed and licensed marijuana businesses to grow.

It’s tricky from a business perspective, because even though states are legalizing marijuana and treating its sale as a legal business enterprise, it’s still considered a Schedule 1 controlled substance under federal law. That means a cannabis/marijuana business has additional considerations under the law, creating unique challenges for members of the industry. Specifically, these businesses are often cash intensive since many can’t use traditional banks to deposit their earnings. It also creates unique challenges for the IRS on how to support these new business owners and still promote tax compliance.

While IRS Code Section 280E is clear that all the deductions and credits aren’t allowed for an illegal business, there’s a caveat: Marijuana business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses, to name a few.

I understand this nuance can be a challenge for some business owners, and I also realize small businesses don’t always have a lot of resources available to them. That’s why I’m making sure the IRS is doing what it can to help businesses with our new Cannabis/Marijuana Initiative.

The goal of this initiative is to implement a strategy to increase voluntary compliance with the tax law while also identifying and addressing non-compliance. I believe this will positively impact filing, payment and reporting compliance on the part of all businesses involved in the growing, distribution and sales of cannabis/marijuana.

How will we do it? Here are some of the strategic activities:

We’ll ensure training and job aids are available to IRS examiners working cases so they can conduct quality examinations (audits) consistently throughout the country.
We’ll make sure there is coordination and a consistent approach by the IRS to the cannabis/marijuana industry.
We’re going to find ways to identify non-compliant taxpayers.
We’ll collaborate with external stakeholders to increase an awareness of tax responsibilities to improve compliance.
And we’ll give taxpayers access to information on how to properly comply with the filing requirements.
I’m very focused on the success of this strategy because it’s very important for business owners to understand that under our nation’s tax laws, and specifically Internal Revenue Code 61, all income is taxable, even if someone is running a business that’s considered illegal under federal law.

I also want to point out that there is no difference in paying income taxes or employment taxes. You still must file your income taxes and you still have to file your employment taxes, and if it’s a cash-intensive business, you still have to make arrangements to pay your tax obligations.

This is a truly groundbreaking effort for our agency. I’m proud of the work my organization has done to provide much-needed educational tips, guidance and more information on our Marijuana Industry page, IRS.gov/marijuana, which includes links to information on:

IRC Section 280E
Income reporting
Cash payment options
Reporting large cash receipts
Estimated payments
Keeping good records
We’ve also posted frequently asked questions on IRS.gov to answer questions commonly asked by those in the cannabis/marijuana industry.

Our strategy is not limited to pushing information out via our website in the hope that business owners will find it. I’ve made it a priority for my SB/SE organization to engage with the cannabis/marijuana industry through speaking events and other outreach. I have done three of these types of events over the last year, and what I have heard is a genuine desire to comply with the tax laws regarding the industry. Through this extended outreach, we hope to help small business owners and others fully understand the unique tax rules before there are any compliance issues.

Cannabis/marijuana business owners also need to understand that all cash-intensive businesses can be, and are, audited. I recommend business owners familiarize themselves with the cash business audit techniques guide and all the resources available on IRS.gov/marijuana.

Here are some other helpful tips to help cannabis/marijuana business owners:

Know your investors
There are thousands of people trying to get into the industry legitimately; however, there are some pitfalls with investors that business owners need to be aware of to make sure their investors don’t cause more harm than good. The social stigma and federal designation as an illegal substance have led to unregistered and “silent” financing and ownership arrangements within the industry. Individuals associated with these funding and ownership arrangements are often referred to as “beneficial owners.” A beneficial owner enjoys the benefits of ownership, but the property’s title or activity is in another name. This creates complex compliance challenges for the IRS and may contribute to a business’s failure to file a tax return or accurately report gross receipts. IRS examiners explore the potential for these arrangements during examination engagements.

Additionally, cannabis/marijuana business owners should be aware of nefarious investors who will try to put funds into these new businesses that could cause them to lose their entire business. For example, if one of these silent investors gives initial money, say $5,000 or $10,000, and it grows to where they can then claim ownership, these businesses can become complicit in laundering money for drug traffickers.

Ensure you’re licensed
Make sure you’re licensed for whatever your location requires. Cannabis/marijuana businesses are highly regulated by state and municipal regulatory agencies from a licensing, product development and movement perspective.

File and pay your taxes on time
As I mentioned earlier, even if your business operates with cash, you are still responsible for filing and paying your taxes on time.

The Internal Revenue Code doesn’t differentiate between income derived from legal sources and income derived from illegal sources. It’s all income and is taxable and must be reported on your tax return. However, because it’s a Schedule I controlled substance, Section 280E of the tax code applies, even if the business operates in a state that has legalized the sale of marijuana.

But Section 280E doesn’t prohibit a participant in the marijuana industry from reducing their gross receipts by properly calculating the cost of goods sold to determine its gross income. For example, a marijuana dispensary may not deduct advertising or selling expenses, but it may reduce its gross receipts by its cost of goods sold.

Cannabis businesses have no exemption from their employment tax obligations, and as with other small businesses, they often need to make quarterly tax payments. These business owners should always pay their taxes on time to avoid interest and penalties.

Our enforcement efforts in the industry indicate there are taxpayers operating in segments of the industry (growers, transporters, wholesalers and retailers/dispensaries) who fail to file U.S. tax returns. These business owners should be aware that non-filers are an IRS enforcement priority.

Another of our top enforcement priorities in the cannabis industry is the use of cryptocurrency. Those who use it need to understand that the IRS considers it property, and there are gains that are taxable. I highly recommend anyone using cryptocurrency in their business to work with a reputable exchanger.

Report your cash transactions
As I mentioned earlier, because marijuana is listed as a U.S. Schedule 1 drug, many businesses do not participate in the U.S. banking system and conduct transactions in cash.

If a business in the cannabis/marijuana industry receives more than $10,000 in cash in a single transaction or in related transactions, they must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business PDF, within 15 days after receiving payment. Business owners really must be diligent about this.

It’s also important to note that some of our IRS Taxpayer Assistance Centers accept cash, but an appointment must be scheduled to make cash payments. The number to call to request an appointment is 844-545-5640.

Keep good records
I don’t think I can stress the importance of good record-keeping enough. All records, such as receipts, canceled checks and other documents that support an item of income, a deduction or a credit appearing on a return should be kept regardless of whether they’re tracked by hard copy or electronically. It’s important for a cannabis business to maintain records for all expenses, even those that are not legally deductible at the federal level, because good, well-organized records make it easier to prepare a tax return, track expenses, substantiate items reported on tax returns, and help provide answers if a return is selected for examination.

Since the unique circumstances of the cannabis industry can make tax preparation challenging, I hope that new and experienced business owners take my advice in this post and use our resources to ensure they understand their tax obligations and avoid penalties associated with non-compliance. We’re always here to help with tools, information and guidance.

IRS Tax Tip 2021-149, October 7, 2021

Taxpayers interacting with the IRS have the right to finality. This right comes into play for taxpayers who are going through an audit. These taxpayers have the right to know when the IRS has finished the audit. This is one of ten basic rights — known collectively as the Taxpayer Bill of Rights.

Here’s what taxpayers in the process of an audit, should know about their right to finality:

• Taxpayers have the right to know:
• The maximum amount of time they have to challenge the IRS’s position.
• The maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. 
• When the IRS has finished an audit.  
• The IRS generally has three years from the date taxpayers file their returns to assess any additional tax for that tax year.   
• There are some limited exceptions to the three-year rule, including when taxpayers fail to file returns for specific years or file false or fraudulent returns. In these cases, the IRS has an unlimited amount of time to assess tax for that tax year.  
• The IRS generally has 10 years from the assessment date to collect unpaid taxes. This 10-year period cannot be extended, except for taxpayers who enter into installment agreements or the IRS obtains court judgments.   
• There are circumstances when the 10-year collection period may be suspended. This can happen when the IRS cannot collect money due to the taxpayer’s bankruptcy or there’s an ongoing collection due process proceeding involving the taxpayer.  
• A statutory notice of deficiency is a letter proposing additional tax the taxpayer owes. This notice must include the deadline for filing a petition with the tax court to challenge the amount proposed.  
• Generally, a taxpayer will only be subject to one audit per tax year. However, the IRS may reopen an audit for a previous tax year, if the IRS finds it necessary. This could happen, for example, if a taxpayer files a fraudulent return.

More Information:
Publication 1, Your Rights as a Taxpayer
Taxpayer Advocate Service

Parents who share custody of their children should be aware of how the advance child tax credit payments are distributed. It is important to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will help parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year.

Here are some of the most common questions about shared custody and the advance child tax credit payments.

If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments?

Who receives 2021 advance child tax credit payments is based on the information on the taxpayer’s 2020 tax return, or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?

Parents who will not be eligible to claim the child tax credit when they file their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.

If parents alternate years claiming their child on their tax return, will the IRS send the 2021 advance child tax credit payments to the parent who claimed the child on their 2020 tax return even though they will not claim them on their 2021 tax return?

Yes. Because the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may be excused from repaying some or all of the excess amount if they qualify for repayment protection. If a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?

Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

IRS.gov has additional information and answers to frequently asked questions about custody situations and how they may affect advance payments of the child tax credit.

On Sept. 15, the IRS delivered a third monthly round of approximately 35 million child tax credits (CTC), totaling $15 billion. However, the IRS system had a technical issue. As a result, approximately 2% of eligible taxpayers did not receive the September payment.

According to an IRS statement, the impacted group primarily included taxpayers who recently made an update on their bank account or address on the IRS CTC Update Portal and affected payments to married filing jointly taxpayers where only one spouse made a bank or address change.

The IRS has since resolved the technical issue, and these individuals should have received their payments by direct deposit on Sept. 24, or this week for those receiving checks by mail.

Generally, there are multiple reasons why people may be seeing a different amount than expected. If only one spouse changed an address or bank account, the other spouse’s half could be going to the old address or bank account. In these instances, the full payment will still be distributed. Monthly payment amounts can also change depending on recently processed tax returns. The IRS encourages people to check the IRS CTC Update Portal for the latest payment information. (Source: NATP TAXPRO Weekly,  9/30/21).

IRS Tax Tip 2021-142, September 27, 2021

Criminals and fraudsters often see disasters as an opportunity to take advantage of victims when they are the most vulnerable, as well as the generous taxpayers who want to help with relief efforts.

These disaster scams normally start with unsolicited contact. The scammer contacts their possible victim by telephone, social media, email or in-person. Also, taxpayers may search for a charity online and be directed to a website or social media page that is not affiliated with the actual charity.

Here are some tips to help taxpayers recognize a scam and avoid becoming a victim:

• Some thieves pretend they are from a charity. They do this to get money or private information from well-intentioned taxpayers.
• Bogus websites use names like legitimate charities. They do this scam to trick people to send money or provide personal financial information.
• Scammers even claim to be working for ― or on behalf of ― the IRS. The thieves say they can help victims file casualty loss claims and get tax refunds.
• Disaster victims can call the IRS toll-free disaster assistance line at 866-562-5227. Phone assistors will answer questions about tax relief or disaster-related tax issues.
• Taxpayers who want to make donations can get information to help them on IRS.gov. The Tax Exempt Organization Search helps users find or verify qualified charities. Donations to these charities may be tax-deductible.
• Taxpayers should always contribute by check or credit card to have a record of the tax-deductible donation if they choose to give money. individual taxpayers can deduct up to $300 and married couples can deduct up to $600 in qualifying charitable contributions for tax year 2021 even if they don’t itemize.
• Donors should not give out personal financial information to anyone who solicits a contribution. This includes things like Social Security numbers or credit card and bank account numbers and passwords.

More Information:
National Center for Disaster Fraud
www.disasterassistance.gov