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Kelly

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Kelly Erb is a tax attorney and tax writer.

Taxpayer asks:

Ma’am I’m new to the Tax issue so if this has been asked I apologize. I’m a union Ironworker, I’ll be filing single and have made $41,000 will my tools (welding hoods etc.) still be a deduction and will my union dues be a deduction as well? 

Thank you for your time.

Taxgirl says:

Unfortunately, no.

It’s confusing because in prior years, union dues and expenses were deductible on Schedule A. They, along with other miscellaneous job-related expenses like tools, were deductible to the extent that they exceeded 2% of your adjusted gross income (AGI).

Under the Tax Cuts and Jobs Act (TCJA), unreimbursed job expenses and miscellaneous deductions subject to the 2% floor have been eliminated for the tax years 2018 through 2025. Those expenses include those that you incur in your job for which you are not reimbursed, like tools and supplies; required uniforms not suitable for ordinary wear; dues and subscriptions; and job search expenses. They also include unreimbursed travel and mileage, as well as the home office deduction.

The TCJA did not change the deduction rules for self-employed persons. If you are self-employed, you can continue to deduct qualifying expenses on Schedule C, Profit or Loss From Your Business on your 1040.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

When I first started writing about tax, I noticed that the posts that sometimes attracted the most attention weren’t always my favorites or the ones that I thought most important. I get it. Sometimes readers are looking for something crazy specific – like tax rates – or something goes viral – like the guy who paid his taxes in dollar bills. That necessarily means that the highest viewed posts aren’t always the ones that I had hoped my readers would enjoy or benefit from the most.

Here are the top tax posts on Taxgirl.com of 2019, as determined by views (note that I omitted tax rates posts):

Of course, sometimes posts aren’t all that popular with readers. Here are the posts that you didn’t read in 2019:

(In fairness, some of those were posted a little late in the year.)

So there you have it… what you did and didn’t read on Taxgirl.com during 2019.

The beginning of a new year is, of course, a good time for reflection. I often say (and I truly believe) that I have the best readers in the world. I love that I get up every day and get to do this job. And I couldn’t do that without you. Thank you. Best wishes for an amazing 2020.

Taxpayer asks:

Since 2002, I have owned (via a single-member LLC) an office complex in upstate new york. I purchased it as an investment to either sell or rent. Unfortunately, this property has been vacant and producing no income as a result of town opposition to the use of the property for office purposes. Similarly, the market value was destroyed by the Town. 

My property taxes paid 2018 are approx 20,000.00. My CPA says that his CCH program does not allow for the full deduction and that it defaults to the 10,000 SALT limit.

I am wondering if you have any experience with the applicability of the SALT deduction to a vacant rental or investment property. Any help would be appreciated. Thanks,

Taxgirl says:

The $10,000 SALT limits cap the aggregate of individual state and local taxes, including real estate taxes. But some taxes don’t apply – those are spelled out at section 164 of the Tax Code which says:

The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. (emphasis added)

In other words, the cap doesn’t apply to state and local taxes that are paid or accrued in carrying on a trade or a business or an activity described in section 212. Section 212 says:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year:

 (1) for the production or collection of income;

 (2) for the management, conservation, or maintenance of property held for the production of income; or

 (3) in connection with the determination, collection, or refund of any tax.

So that rental real estate you have? You’re using it to produce income, right? Then it should not be subject to the cap. The cap is intended to apply to those state and local taxes claimed on a Schedule A.

I don’t know whether your CPA is getting hung up on the vacancy bit. The timing could be an issue. You didn’t say how long the property has not been producing income, but the IRS likes to see businesses making money. A good rule of thumb is that you should be showing a profit three of five years. If you have not made money for years, it may be that your CPA is treating the investment as a hobby or personal asset instead of as a business. I’d ask him to explain his thinking, and if you’re not satisfied with the answer, seek a second opinion.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

Taxpayer asks:

If the sole owner of a home passes – is there a capital gains write off or is it lost at death?  If not lost at death, is there a time limit?

Taxgirl says:

When an owner – sole or otherwise – of a home passes away, there’s a step-up in basis. What that means is that the fair market value of the home as of the date of death becomes the new basis (if there are multiple owners, the new basis is pro-rated). That’s true no matter what you paid for the house originally.

Here’s a quick example. Let’s say your mother bought her home for $100,000. And let’s also say that it was worth $250,000 at her death and you sold it a year later for $300,000. The capital gain on that sale is $50,000. That’s because the original purchase price ($100,000) is no longer applicable. The new basis is $250,000 – that date of death value. You calculate your capital gains based on the regular formula: selling price – basis = capital gains (or loss). In this case, that’s $300,000 – $250,000, for a capital gain of $50,000.

There’s no time limit on the sale for capital gains purposes. The basis doesn’t expire or fade away. However, the longer you hold onto the residence, the more likely it is to appreciate in value (thus increasing the capital gain). Remember this is a federal capital gains question: there may be applicable state and local probate and tax laws. 

Finally, there’s typically no write-off or loss. If you sold the home for $10,000, you generally don’t get to claim a loss on the difference between the basis and the selling price. Capital losses do not apply to a personal residence or other personal use property like your car. Only losses associated with property used in a trade or business and investment property, like stocks, are deductible. However, that’s where an exception might apply for estate property: if you argue that the home is held by the estate for investment purposes, you may be able to treat it as a capital asset (and thus, realize a loss). This can be a tricky concept so it’s best to consult with a tax professional.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

Taxpayer asks:

Hi! Thank you for your time.

My husband and I are volunteering at a charity event for a few days, and we have to have a babysitter. She’s babysitting at no cost to us (she’s family), but can she deduct any of her babysitting expenses? Would it be charitable giving on her part? Thank you!

Taxgirl says:

Unfortunately, no. You cannot claim the value of your time as a charitable deduction on your federal income tax return even if you’re volunteering directly for a charity. This is true even if you can value your time (for example, $10/hour for babysitting or $60/hour for house painting). 

You can typically deduct associated expenses, like mileage, for volunteering with a qualified charitable organization; in this case, however, your babysitter is doing this as a favor for you (which is super nice) and not as a direct benefit to the charity. Those expenses would not be deductible. 

(On the plus side, your babysitter is not missing out on much. Congress hasn’t changed the charitable mileage deduction since the Clinton era, and it remains just 14 cents per mile.)

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

It’s Fix the Tax Code Friday! Charitable deductions have been limited to taxpayers who itemize their deductions rather than claim the standard deduction. With the doubling of the standard deduction under the Taxpayers Cuts and Jobs Act, fewer taxpayers itemize their deduction. That means that fewer taxpayers have a tax incentive to make a charitable donation.

Earlier this year, I reported that the total number of taxpayers claiming the charitable donation deduction has dropped. For some organizations, that can – but does not necessarily – result in a dip in donations.

Some taxpayers have called for the deduction to be extended to apply to all taxpayers in the form of an above-the-line deduction (meaning that you don’t have to itemize to claim the deduction). Others argue that charitable donations should be made out of generosity alone and that tax incentives aren’t necessary.

That leads to this week’s question:

Should Congress extend the deduction for charitable donations to non-itemizers, and make it an above-the-line deduction (like the student loan interest deduction)?

There are big changes in store for tax-exempt organizations. Earlier this year, the Taxpayer First Act was passed. Provisions in the new law, which take effect for tax years beginning after July 1, 2019, require tax-exempt organizations to electronically file information returns and related forms.

Taxpayers who previously filed on paper should receive notice from the Internal Revenue Service (IRS) alerting them to the changes. Those changes include:

The IRS will no longer accept paper Forms 8872, Political Organization Report of Contributions and Expenditures. Forms 8872 reporting information for periods starting on or after January 2020, will be due electronically. Forms 8872 are used by 527 organizations, including political parties, political action committees and campaign committees of candidates for federal, state or local office.

Forms 990, Return of Organization Exempt from Income Tax, and 990-PF,  Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, with tax years ending July 31, 2020, and later MUST be filed electronically. Forms 990 and 990-PF filings for tax years ended on or before June 30, 2020, may still be filed on paper. The IRS will also continue to accept paper forms for short tax years or certain other circumstances detailed in the instructions (until further notice).

The IRS will accept paper or electronic Forms 990-EZ, Short Form Return of Organization Exempt from Income Tax, for organizations with a tax year ending on or before July 31, 2020. You must file electronically if your tax year ends August 31, 2020, and later.

Form 990-T,  Exempt Organization Business Income Tax Return, and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, may still be filed on paper through 2020.

You can find more information on the Taxpayer First Act at IRS.gov.

Taxpayer asks:

Reading about you connected me to this site. I had a small question.

That is can I double my deductions on my 2019 taxes being that last year I took the standard deduction. Such as House taxes, mortgage, charitable donations. 

Thank You

Taxgirl says:

I’m glad that you found the site!

Under the Taxpayer Cuts and Jobs Act (TCJA), more taxpayers are claiming the standard deduction. The changes typically benefit taxpayers who might have some itemized deductions (like home mortgage interest) but not so much that they exceed the new standard deduction amounts. The amounts are pretty generous with the standard deduction amount for married couples starting at $24,400 in 2019 (higher standard deductions may be available for those over age 65 and/or blind). You can find the numbers for 2019 here and for 2020 here.

If the numbers work out for you to claim the standard deduction in 2019, that doesn’t necessarily mean that it will work out the same for 2020. Circumstances change. And it’s absolutely the case that you can opt to claim the standard deduction in one year and itemized deductions in another. 

It sounds as though you are asking whether if you claim the standard deduction in one year – and therefore have unused itemized deductions in that year – you can simply roll those deductions into the next year. The answer is no. The rules regarding deductibility remain the same as always: you’re entitled to the deduction in the year the expense is paid. So, if you pay home mortgage interest in 2019, you can only claim that expense in 2019. If you claim the standard deduction for that year, then your deduction for home mortgage interest is “lost” (I used quotes here because you’re still benefiting from the higher standard deduction that year).

But this does lend itself to some planning ideas. If you expect that you might have higher expenses in one year – say, you have a significant medical procedure coming up in 2020 – you can adjust the timing of your other costs. So instead of writing that check to charity in 2019, consider doubling up in 2020. That’s called “bundling” – the idea that you can bundle expenses in one year to produce a higher itemized deduction total. It’s totally legitimate planning, but again, it only works if you pay the expenses in the year that you intend to claim the deduction.

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

$8.41. That was how much 83-year-old Uri Rafaeli, a retired engineer, in Michigan underpaid his property taxes by in 2014. That was all it took for him to lose his house.

Rafaeli bought a 1,500-square-foot Southfield home in 2011. He paid $60,000 for the property, and the deed was recorded by the Oakland County Register of Deeds on January 6, 2012. He put additional money into the home, too, as he intended to use the rental income from the property to fund his retirement.

Rafaeli believed that he was paying his property taxes on time and in full, but in 2012, he received notice that he had underpaid his 2011 tax bill by $496. He paid up in 2013 but made a mistake figuring the interest (interest also accrued while his check was in the mail): He was short by $8.41. 

In response, Oakland County seized his property and put it up for sale. The home netted just $24,500 at auction; according to Zillow, the property is now estimated to be worth nearly $130,000.

The County kept the overage from the auction: $24,215 in profits, or 8,496% of the actual tax, penalties, and interest due (the debt had grown to $285 with penalties, interest, and fees).

It was all legal. 

Under Act 123 of 1999, Michigan allows its county treasurers a great deal of authority to handle unpaid taxes, including rushing the tax foreclosure process. Under the Act, the property is considered delinquent if taxes aren’t paid in the previous year. If the outstanding taxes, fees, and penalties remain unpaid after two years, the County can foreclose on the property; that’s much more quickly than before when the average timeframe to move a foreclosure was five to seven years. Shortly after foreclosure, the former owner loses the right to buy back the property, and the County becomes the owner. At the sale, the funds belong to the County. There’s no requirement to refund any of the proceeds to the owner even if the overage far exceeds the amount owed.

Rafaeli—and his lawyers—think that’s wrong. They took the matter to the U.S. District Court for the Eastern District of Michigan. The court found that Rafaeli—and a similarly situated plaintiff—suffered “a manifest injustice that should find redress under the law” but dismissed the claim for lack of jurisdiction. 

Rafaeli tried again. He didn’t argue that he didn’t owe tax, penalties, interest, and fees. But he did object to the County taking the excess. The County argued that Rafaeli had no rights to the equity because the General Property Tax Act does not expressly protect it. And that’s the reason that Rafaeli keeps losing: The courts have sympathy for his plight but have found that the law does not prevent the County from keeping it.

He’s not alone. Tens of thousands of properties in Detroit have been subject to the same kind of treatment. Many of those who owe taxes understand that they have a debt, but they don’t necessarily understand how to navigate the process or what the failure to pay on time can mean. As with Rafaeli, even something as simple as miscalculating the interest due can have serious consequences.

Today, Rafaeli is represented by the Pacific Legal Foundation (PLF). PLF was founded in 1973 by members of then-governor Ronald Reagan’s staff as the first public interest law firm dedicated to the principles of individual rights and limited government. PLF is taking the case to the Michigan Supreme Court, arguing that keeping the funds is an unjust taking. If he wins, Rafaeli—and other landowners in similar situations—may be entitled to compensation.

According to PLF, the entire process, as it is happening now, is nothing more than government-sanctioned theft. “Predatory government foreclosure particularly threatens the elderly, sick, and people in economic distress,” PLF argued on its website. “It could happen to your grandparents. It could happen to you.”

The Justice Department has announced a settlement with Franchise Group Intermediate L 1 LLC, (Liberty), the national franchisor and owner of Liberty Tax Service stores. The settlement, if approved by the court, would resolve a complaint filed with a U.S. District Court in Norfolk, Virginia, by the Justice Department against Liberty.

Liberty is one of the largest tax preparation service providers in the country. According to its annual report filed with the SEC in 2019, Liberty has more than 2,800 franchise and company-owned tax return preparation offices in the United States (Liberty also markets services in Canada). Between 2015 and 2019, Liberty filed approximately 1.3 to 1.9 million tax returns each year through its stores, claiming billions in federal tax refunds on behalf of its customers.

According to the complaint, Liberty failed to maintain adequate controls over tax returns prepared by its franchisees. The company reportedly did not take steps to prevent the filing of potentially false or fraudulent returns prepared by franchisees, despite notice of fraud at some of its franchisee stores.

The government reports that between 2013 and 2018, 10 separate civil law enforcement actions were filed in U.S. District Courts throughout the United States against 12 franchisees of Liberty Tax, or their owners, former owners, or former managers. Judgments were entered in favor of the government in nine of those cases; the tenth, United States v. Doletzky et al., Case No: 8:18-cv-00780-CEH-CPT (M.D. Fla.), is pending.

Where did those franchisees go wrong? At many, the problems were tied to the Earned Income Tax Credit (EITC). Since the EITC allows some taxpayers to get a refund in excess of any tax paid into the system, it’s long been associated with fraud: the Internal Revenue Service (IRS) estimates that about a quarter of all EITC refunds are improperly issued.

(You can find out more about the EITC here.)

Liberty Tax franchise and company-owned stores filed a lot of returns for taxpayers claiming the EITC. According to the complaint, for the tax years from 2012 to 2018, approximately 41% of federal income tax returns that Liberty Tax electronically filed with the IRS included an EITC claim, more than double the rate of other returns electronically filed during that period. Those Liberty EITC refunds exceeded $12 billion. 

And remember those court actions mentioned earlier? From 2010 to 2016, employees at those stores claimed false EITC refunds by reporting income that did not exist and ignoring due diligence requirements.

In some cases, the government alleges that Liberty Tax franchisees recruited customers, including the homeless, and then prepared fraudulent federal income tax returns on their behalf. To boost income, they reported fake wages earned from household work (HSH) like housekeeping, babysitting, or gardening.

For example, in 2015, a Liberty Tax Service franchise owned and operated by Kone prepared over 1,000 tax returns that claimed HSH Income and the EITC. The fraudulent tax returns included over 350 tax returns that reported the same amount of HSH Income ($6,400) and over 300 tax returns that each reported precisely $7,200 of HSH Income. 

The government claims that Liberty either knew or should have known about the EITC fraud at its franchise locations, but didn’t try to stop it. Notably, in January of 2014, the company and its CEO at the time, John T. Hewitt, received complaints that franchisees had prepared tax returns with potentially false EITC claims linked to HSH income. Nonetheless, the number of returns claiming HSH income increased. 

The government also says that when the company identified specific EITC violations, it didn’t take steps to curb the abuse. In 2016, Liberty Tax conducted an onsite compliance review of one franchisee and found errors in over 80% of the EITC files. The company gave the franchisee a failing EITC compliance grade but did not terminate him until the government initiated a civil enforcement action in 2018. 

Other improper acts include erroneous dependent claims, false claims for expenses, and fraudulent claims for refundable education credits. There were also reported violations of federal Preparer Tax Identification Number (“PTIN”) regulations, including stores that allowed employees to share PTINS so that employees without PTINs could prepare tax returns.

In 2019, Liberty admitted in its annual report that it “did not maintain effective internal control over financial reporting” and “[t]he control environment, risk assessment, control activities, information and communication, and monitoring controls were not effective.” Still, the government says that the company failed to take sufficient measures to prevent fraud and errors at its stores. In many cases, the complaint alleges that Liberty only terminated franchisees after the United States or other law enforcement agencies took action.

How bad was it? According to the complaint, for tax years from 2012 to 2016, the IRS assessed over 25,000 separate penalties against tax return preparers for tax returns prepared at Liberty franchises and company-owned stores. For tax years from 2012 to 2017, 20,000 of the 28,000 audits of Liberty customer tax returns resulted in changes to correct false or incorrect items reported on each return – a whopping 70%.

Under the settlement, Liberty would be required to take steps to identify and curb abuse going forward. Those steps include a ban on employing the company’s founder and former CEO, John T. Hewitt; Hewitt would also not be allowed to hold an interest in or serve on the board of directors of any Franchise Group of the company.

Liberty would also be required to establish enhanced compliance measures, including training programs and additional resources to monitor, detect, and report non-compliance. The company must also take steps to ensure effective quality control throughout its stores, including conducting onsite compliance reviews and using mystery shoppers. Additionally, the settlement mandates disclosure of any potential violations to the government. 

The high-profile complaint and settlement is an acknowledgment that return preparer fraud is a serious problem – so much so that the IRS included it in its Dirty Dozen Tax Scams for 2019. To protect yourself, use care when choosing a preparer and remember that taxpayers should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs). For hints on finding a tax preparer, click here. For more information about return preparer fraud, check out IR-2019-32.

The death of the Affordable Care Act may have been exaggerated, but some provisions, like the shared responsibility payment, have effectively been killed off. Beginning in the 2019 tax year (that’s the return you’ll file in 2020), there will be no individual shared responsibility payment for taxpayers who fail to maintain minimum essential coverage. However, requirements for employers to report coverage remain firmly in place – but relief is on the way.

Confused? Here’s what you need to know.

As part of the Tax Cuts and Jobs Act (TCJA), the individual shared responsibility payment has been reduced to zero for months beginning after December 31, 2018. In other words, there’s no shared responsibility payment (sometimes called the healthcare penalty) for the 2019 tax year. However, the TCJA did not address reporting requirements for employers. As a result, the Internal Revenue Service (IRS) indicated in Notice 2018-94 (downloads as a PDF) that they would take a look at how the reporting requirements should change, if at all. 

This year, in Notice 2019-63 (downloads as a PDF), the IRS has indicated that it will not assess a penalty under section 6722 to employers or other reporting entities who fail to report particular coverage. Specifically, the IRS will not impose penalties for those who do not issue a Form 1095-B to responsible individuals if two conditions are met:

  1. The employer (or entity) must post a notice prominently on its website stating that a copy of the 2019 Form 1095-B is available upon request. The announcement has to provide an email address and a physical address that can be used to request the form and a telephone number for any questions. 
  2. The employer (or entity) must furnish the form within 30 days after the request is received. 

Applicable large employers (ALE) or ALE members may still have reporting requirements. The relief does not extend to the requirement to furnish Forms 1095-C to full-time employees: penalties will continue to be assessed for any failure by ALE members to provide Form 1095-C, including Part III. Some exceptions apply.

The IRS is also giving employers two more months to get the paperwork to employees. The notice extends the due date for employers to furnish the 2019 Forms 1095-B and 1095-C, from January 31, 2020, to March 2, 2020. However, the notice does not extend the due date for filing the 2019 Forms 1094-B, 1095-B, 1094-C, or 1095-C with the IRS; automatic extension remains available under the standard rules for those who submit a Form 8809 on or before the due date.

Finally, relief is also available for employers who report incorrect or incomplete filing information (like missing or wrong taxpayer identification numbers and dates of birth) so long as they make a good-faith effort to comply by the March deadline.

The IRS will continue to examine the rules for future years. If you have comments, you can submit them electronically via the Federal eRulemaking Portal at www.regulations.gov (type “IRS2019-XX” in the search field on the regulations.gov homepage to find this notice and submit comments). You can also mail comments to Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2019-XX) Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Remember that all comments will be available for public inspection.

Ready to do some Christmas shopping? In the wake of Black Friday and the run-up to Cyber Monday, shoppers are hitting the stores – and the keyboards. If you’re hoping that “The 12 Days of Christmas” will offer some gift-giving inspiration this year, you’re in luck. With inflation holding steady, it will cost just $38,993.59 to buy all of the gifts in the classic carol, a boost of just 0.2% over last year’s cost.

According to PNC’s Christmas Price Index® (PNC CPI), the 0.2% increase over the cost in 2018 is the smallest change in the index since 2002, when it actually dropped by 10.2%. The PNC CPI is calculated using a method similar to the government’s consumer price index (CPI) and measures the cost of buying the gifts given in “The 12 Days of Christmas.” 

PNC 12 Days

By way of comparison, the government’s CPI measures the cost of goods and services for consumers; you can think of it like your cost of living. Each month, the U.S. Bureau of Labor Statistics reports on the CPI; since those numbers are tied to inflation, they tend to be indicators on interest rates. The CPI measures the cost of goods and services—in other words, your cost of living. Under the Tax Cuts And Jobs Act (TCJA), the Internal Revenue Service (IRS) now figures cost-of-living adjustments using a “chained” CPI. The chained CPI measures consumer responses to higher prices rather than merely measuring the higher prices. You can find some examples of how the chained CPI works here.

That’s important to taxpayers since the Tax Code provides for mandatory annual adjustments to certain tax items, like the standard deduction amounts, based on interest rates.

But not all adjustments are equal. To keep the comparison between its index and the government’s CPI fair, PNC excludes the cost of the swans, typically the most volatile item in the list (the government similarly excludes energy and food prices).

Even with fluctuations in the cost of living, seven of the 12 items on the list in 2019 remained the same price as last year. Those include the cost of the Seven seasonal items, the Partridge, Three French Hens, Four Calling Birds, Seven Swans-a-Swimming, Eight Maids-a-Milking, Nine Ladies Dancing, and 10 Lords-a-Leaping.

“Despite the stock market hitting record highs recently, it is a welcome gift for the holidays that the PNC Christmas Price Index stayed relatively flat this year,” said Amanda Agati, chief investment strategist for PNC Asset Management Group. “However, the scrooges of the season are the gold rings which saw the biggest year-over-year price increase in the index, and prices for some of our fowl friends which are truly foul.”

Agati is referring to the price for Turtle Doves which took a tail dive, down a dramatic 20%, the first drop in price since 2004. In contrast, the price of gold is on the way up: the price of Gold Rings climbed 10% this year.

But still gaining from last year? The Geese, which clicked up a whopping 7.7% – largely due to an increase of interest in backyard farming.

Here’s the entire list for 2019 along with the percentage changes from 2018:

  • 1 Partridge in a Pear Tree: $210.17 (-4.5%)
  • 2 Turtledoves: $300.00 (-20%)
  • 3 French Hens: $181.50 (no change)
  • 4 Calling Birds: $599.96 (no change)
  • 5 Gold Rings: $825.00 (+10%)
  • 6 Geese-a-Laying: $420.00 (+7.7%)
  • 7 Swans-a-Swimming: $13,125.00 (no change)
  • 8 Maids-a-Milking: $58.00 (no change)
  • 9 Ladies Dancing: $7,552.84 (no change)
  • 10 Lords-a-Leaping: $10,000 (no change)
  • 11 Pipers Piping: $2,748.87 (+.8%)
  • 12 Drummers Drumming: $2,972.25 (+.8%)

If you bought all of the gifts on the list, it would cost you $38,993.59. If, however, you really wanted to impress your true love by nabbing all 364 items–the number of the items as repeated throughout the song over and over (and over)–you’d have to cough up $170,298.03, or $781.94 more than last year.

Those prices reflect the cost of shopping the traditional way: actually going to jewelry stores, plant nurseries and hiring talent in person. If you bought all of these items on the internet, you’d pay $42,258.91, or $3,265.32 more than in the store. That’s largely attributable to shipping costs—despite relatively flat fuel costs, it’s apparently pretty expensive to ship swans and doves.

Sales tax (or use tax, if you’re shopping online) might be payable on your Christmas gifts–but that varies by location. While most states impose some level of sales tax, there is dramatic variation between what goods and services are subject to tax. This is especially true when it comes to the costs of services. PNC is located in Pennsylvania where food (except for ready-to-eat), most clothing apparel, and medicines are nontaxable. But that pear tree? Taxable. Those gold rings? Taxable. Pets and most animals? Also taxable. Those milkmaids, however? Not taxable—as a farm and dairy state, most dairy-related services are exempt. Figuring the exemptions from state to state would be wildly time-consuming, so the CPI is tax neutral.

PNC has figured the CPI each year since 1984. The sources for the prices from year to year generally remain the same to promote consistency. Prices this year are 95% higher than they were in that inaugural year when the cost of the gifts totaled $18,845.97. The cheapest PNC CPI occurred in 1995 when Christmas cost just under $15,600.

(If you’re in the mood to play around with the numbers, you can check fluctuations by individual gift on the PNC website.) 

The PNC Financial Services Group, Inc. (NYSE: PNC) is one of the largest diversified financial services institutions in the United States with a full range of lending products; specialized services for corporations and government entities; wealth management and asset management. For information about PNC, visit www.pnc.com.

I’ve received a few questions about the newsletter. I know it’s confusing, so I’ll try to sort it out for you.

Years ago, I had just one subscription option: the daily feed from Feedburner. With that, you would receive a daily notification if I posted on Taxgirl.com.

When I started writing more often for Forbes.com, I switched the feed to that site. Eventually, Forbes cut the subscription option. That’s why many of you wrote to tell me that you were no longer receiving the newsletter.

There are now two options that I control (since I don’t control Bloomberg or Forbes sites) for subscribing to my content:

  • The daily feed sign-up for Taxgirl.com is here. If you sign up through that link, you’ll get an email when I post new content on the Taxgirl.com site.
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It’s deja vu all over again as the Internal Revenue Service (IRS) is seeking to access customer data from Bitstamp. As with the Coinbase case, a taxpayer balked at the data sharing and filed suit to stop it. And just like the Coinbase case, the IRS won in part and lost in part.

Bitstamp describes itself as “a European based cryptocurrency marketplace.” It’s based in Luxembourg but runs a United States office out of New York City. The marketplace allows people from all around the world to buy and sell cryptocurrencies like Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and XRP (Ripple). 

According to court documents, William Zietzke self-prepared his 2016 tax return using Turbo Tax. He reported long-term capital gains of $104,482 as a result of Bitcoin transactions that he said took place in 2016. He eventually hired a Certified Public Accountant (CPA); the CPA amended his returns and reduced the long-term capital gains in 2016 from $104,482 to $410, which should have resulted in a $15,475 refund.

Zietzke was audited and he told the Revenue Officer that he had two separate groups of Bitcoin holdings. The first group was managed through Armory wallet software, and the second was held in wallets hosted by Coinbase and Purse.io. He did not mention Bitstamp, and the Revenue Officer found at least one transaction through Bitstamp while reviewing the taxpayer’s records.

In June of 2019, the Revenue Officer issued a third-party summons to Bitstamp. A third-party summons is typically issued when the IRS has reason to believe that another party, like a bank or an employer, has information that a taxpayer has not made available.

Here’s where things get tricky. The summons notes that the tax year in question is 2016. However, the summons, which asks Bitstamp to provide all records related to the taxpayer, does not appear to limit the request to the tax year 2016.

The Revenue Officer also asked Zietzke to turn over all documents related to all of his crypto holdings, including any tied to wallets hosted by Coinbase, Bitstamp, BTC-e, and purse.io. However, the request made to Zietzke specifically limited the scope to the tax year 2016. 

Zietzke argued that the summons was overbroad. Not surprisingly, he relied on the Coinbase case. He also noted that the IRS had requested information from Bitstamp (like account opening and application records) that went beyond the scope of what the courts allowed in the Coinbase case.

Zietzke sought to quash the summons entirely, or in the alternative, limit the scope. Quash is a legal term that means to set aside or cancel.

Writing for the United States District Court, Judge John C. Coughenour denied Zietzke’s petition. But it wasn’t a complete loss. Judge Coughenour did find the summons overbroad and required the IRS to file a proposed amended summons that complied with his court order.

Judge Coughenour agreed that the IRS has an interest in determining how many Bitcoin transactions Zietzke engaged in for the tax year in question (2016). However, the request, as written, would require Bitstamp to produce information relating to Bitcoin sales before 2016—even though those transactions could not impact Zietzke’s gain or loss if he sold Bitcoins in 2016. That, the court found, is overbroad.

The IRS was ordered to amend the summons so that the demand for information relates only to Zietzke’s 2016 transactions. Bowing to basis issues, the court found that the requests may ask for information before 2016 only to the extent that it is relevant to determining the tax implications of transactions in 2016. 

After the IRS has prepared a proposed summons, Zietzke gets another bite at the apple and can appeal. The case is Zietzke v. United States of America (2:19-cv-01234).

Bitstamp does not appear to have addressed the matter on its website. I can’t find any mention of it in the news section of the website, and if you type in “tax” in the search box, there aren’t any results.

But don’t expect this to be the last word. Earlier this year, the IRS has announced that they were sending letters to approximately 10,000 taxpayers who might have failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. Compliance from taxpayers using virtual currency is one of five IRS campaigns announced last year. And this year, the IRS issued new guidance for taxpayers who engage in transactions involving virtual currency, including cryptocurrency, the first in five years. You can bet there’s more to come.

It’s true: Simple is hard.

In an effort to make things easier for taxpayers and tax forms issuers, the Internal Revenue Service (IRS) is bringing back form 1099-NEC, Nonemployee Compensation. If that rings a bell, you’re showing your age: we haven’t seen this form since 1982.

The IRS initially announced the return of form 1099-NEC in August of this year. Now, we have an updated draft. Here’s what it looks like:

1099-NEC draft to replace 1099-MISC

The form will replace parts of the everything-but-the-kitchen-sink form 1099-MISC, Miscellaneous Income, for some taxpayers. Ironically, form 1099-MISC was the form that replaced form 1099-NEC in the first place (is your head spinning yet?).

Why the need for the change again? The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted on December 18, 2015, made several changes to the way we file taxes. Specifically, under the PATH Act, employers were required to furnish some forms 1099-MISC to taxpayers by January 31. However, the PATH Act didn’t change the due dates for all forms 1099-MISC. Remember – it’s a catch-all form. The due date for certain forms 1099-MISC was January 31, while the due date for other forms 1099-MISC was February 15.

That was confusing for employers and taxpayers, and it was no less confusing for IRS systems and employees. The solution? Bring back form 1099-NEC to report non-employee compensation for independent contractors and freelancers. 

Under the draft form, forms would be due to the taxpayer and the IRS by February 1 (I expect that might change to January 31 for the sake of consistency).

The form is expected to make its debut for the 2020 tax year, which means that you will still receive a form 1099-MISC for non-employee compensation (among other things) for the 2019 tax year.

You can view the draft form, which downloads as a PDF, on the IRS website.