IRS In the NewsMay 31, 2013 |
Sequestration and the IRS
Earlier this year, the previously little-known word of “sequestration” was catapulted to the forefront of the news because effective March 1, 2013 the American Taxpayer Relief Act of 2012 mandated an approximate $1 trillion spending cut for federal agencies over a 10-year period. So, what exactly is sequestration and how does it affect the IRS?
To implement its share of the budget cuts, the IRS announced that it will close all IRS operations on 5 separate days: May 24th, June 14th, July 5th, July 22nd and August 30th. All IRS employees will be furloughed on these days – unpaid leave – at a cost savings of approximately $25 million dollars per day. The days are scheduled so that employees only have 1 unpaid day per pay period. The IRS may announce additional furlough days for 2013, and additional future cuts are still unknown.
Importantly, the furlough dates do not extend tax filing deadlines (although the IRS will not be able to accept or acknowledge e-filed returns on such dates), nor do they extend court deadlines. Similarly, the furlough dates do not extend the time to make necessary employment or excise tax deposits due on any of these dates, since the mandatory Electronic Federal Tax Payment System will remain open.
However, if a taxpayer’s deadline to respond to the IRS (for certain document related requests), falls on a furlough date, then the taxpayer will have until the next business day to submit such response.
What is a 501(c)(4)?
In recent weeks, there has been a lot of press on whether the IRS inappropriately “targeted” conservative political groups, such as the Tea Party and patriot groups. According to a Treasury Department report issued on May 14, 2013, the IRS “targeted” entities that applied for exempt status under IRC §501(c)(4). So, what is a §501(c)(4) corporation and why would the IRS (allegedly) take such affirmative steps to scrutinize these applications?
A 501(c)(4) is not a charity – contributions to a (c)(4) are not tax deductible. It is a social welfare organization that has the ability to lobby and participate in political activities. A (c)(4) can lobby as its exclusive activity and it can engage in campaign activities to support or oppose a political candidate. By contrast, 501(c)(3) charities can only lobby to a limited extent, and they are prohibited from engaging in any campaign activity. Although campaign activity cannot be the primary activity of a (c)(4), and it must pay taxes on certain political expenditures, it can still be involved to a much greater extent than a (c)(3).
In fact, according to the Treasury Department report, some Congressional members have raised concerns that (c)(4) entities may be engaging in a “substantial, or even predominant, amount of campaign activity.” The concern is that §501(c)(4) entities are being used as a loophole to campaign while keeping their donors anonymous. A §527 political organization is also an exempt entity, but one that can campaign exclusively. An important distinction between a (c)(4) and a §527 entity is that a (c)(4) does not have to publicly disclose its donors (neither does a (c)(3)). Therefore, (c)(4)’s are appealing to groups who want to ensure the anonymity of their donors, but also want to lobby and campaign. Arguably, this may be more of a campaign finance issue than a tax issue.
Deadlines Relating to Foreign Assets & Income
June 17, 2013 – deadline for U.S. citizens or resident aliens living abroad (and certain non-resident aliens with U.S. source income) to file their individual income tax return; taxpayers should ensure that they include Form 8938 Statement of Foreign Financial Assets, if required.
June 30, 2013 – deadline to file Report of Foreign Bank and Financial Accounts (FBAR) (Form TD F 90-22.1).