Death and... Taxes.

fred sanford · Nov 12, 2019

Anyone here have experience with Depends Care FSAs? I used to use one but got cut off from it because I became a highly compensated employee. My wife will have one available to her next year so I'd like to use it again. I'm not sure if or what the limits are since I'm an HCE. So far I've found two different statements but can't find anything official from the IRS.

"If you are an HCE, your Dependent Care FSA deduction may not exceed $3,600 per family for a married couple filing jointly"

"If you are a Highly Compensated Employee, your dependent care contribution is limited to a lower amount ($1,900 per family)"

The closest statement I can find from the IRS is this which seems to make it sound like I can't have funds for the FSA removed from my wages but that doesn't mean my wife can't. I checked on the code mentioned and it gives no info on HCEs.

"You can't exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program don't favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. "

Captain Suave · Nov 12, 2019

fred sanford said:
Anyone here have experience with Depends Care FSAs?

"If you are an HCE, your Dependent Care FSA deduction may not exceed $3,600 per family for a married couple filing jointly"

The closest statement I can find from the IRS is this which seems to make it sound like I can't have funds for the FSA removed from my wages but that doesn't mean my wife can't.

I believe the limits apply to all parties on the joint application. You don't get any benefit from a spouse with a lower annual income (beyond the income, obviously). Everything else works that way.

Frenzied Wombat · May 21, 2020

Decided to necro this one as it was the least old of the tax threads..

Any CPA's or tax attorneys here? I'll inevitably be engaging one locally, but wouldn't mind a headstart on some potential anxiety reduction.

Here's the scenario:

Back in 2017 my grandmother in Canada passed away and had a Canadian life insurance policy that was taken out by my mother and two uncles decades ago. My mother pre-deceased my grandmother, dying in 2011, and me and my three sisters basically became the beneficiaries of her 1/3 portion of the life insurance policy. When the insurance provider paid out, for whatever reason they did not send me and my sisters (who all live in the US) individual checks based upon the beneficiary breakdown, they sent the entire sum to one of my uncles in Canada (about 500K or so). So for the sake of simplicity, and so he didn't have to send four international wires, he simply wired me and my sisters portion to me directly, I kept my share, and wired the remainder to my three sisters across the country. The approximate total amount of the wire was 250K (my uncles had taken loans against my grandmothers assets over the years, so we were owed more than 1/3) and my share was about 80K. At the time I didn't think anything about it-- I simply googled whether foreign inheritances are considered taxable income, it said it wasn't, and I called it a day. Likewise, "have you received any foreign non trust non taxable income" was never a question that my tax guy ever asked.

So flash forward to today, where for the first time in like six years I decided to do my taxes on my own. I realized after I E-filed with Turbotax that I made a booboo on my deductibles, claiming a deduction that wouldn't be valid for this year (wrong year charitable donation), and looked into what I'd need to do to correct it. A 1040X sounded like an audit invitation, but I discovered there is something called a "superseding return" that if filed before the tax deadline, basically "wipes out" your first filing and replaces it, rather than amending it. It's based on some Supreme Court case the IRS lost. So between the Coronavirus extension, and the extension I filed, I'm well within the deadline to file a superseding return.

In any case, while I was researching the superseding return details I came across some article about various ways the IRS fucks people with little known gotchas or obscure tax requirements. One of them was failing to file form 3250 for income from a foreign trust, bequeathment, or gift. It's not even part of the standard tax return, but an "international" return that must be filed by mail. It would appear that even if the income is not taxable, it must be reported if it's in excess of $100,000, and supposedly the IRS gets all bank records of these transactions. Worse, it appears to be immune from the statute of limitations of three years on audits, so after reading some stories it appears the IRS likes to wait it out for as long as possible to maximize penalties, then mail you a letter demanding the maximum. For gifts and bequeathment, that is 5% per month up to a max 25% of the amount transferred-- so in my case like 60K or so at this point.

So the question is, what should I do and how fucked am I? Does the fact that the sum wasn't entirely for me, and instead split amongst my sisters, bringing the amount to under 100K for me myself give me an "out"? Should I just hope they never send me a letter one day since technically the penalty has already been maxed?

a c i d.f l y · May 21, 2020

I'm assuming you have supporting documentation that shows where the money was allocated, with bank statements showing the deposit and transfer receipts? If so, only the amount you received is what you're liable for, but because you received and transferred funds over $100k, you would still need to file a Form 3250 to document this. I can't speak to what if any estate, gift or other taxes you might potentially owe, as that can be impacted by state laws. Though you will only be responsible for the amount you retained. The other recipients would be responsible for their shares.

Frenzied Wombat · May 21, 2020

a c i d.f l y said:
I'm assuming you have supporting documentation that shows where the money was allocated, with bank statements showing the deposit and transfer receipts? If so, only the amount you received is what you're liable for, but because you received and transferred funds over $100k, you would still need to file a Form 3250 to document this. I can't speak to what if any estate, gift or other taxes you might potentially owe, as that can be impacted by state laws. Though you will only be responsible for the amount you retained. The other recipients would be responsible for their shares.

yeah, it was all done by wire and bank transfer, so I have the total sum coming into my account one day, and about 2/3's leaving it to my sister's accounts a few days later. I don't have the statements, and my bank online only goes back two years, but no doubt they have them if I need them. I'm certain I don't have any federal tax liability based on what I read, and I live in Texas so I would be surprised if there was one that was State related, but what I'm concerned about are penalties for not reporting it. The question is whether the penalty applies due to the fact that only one third of the amount went to me, which would technically be under 100K.

This is absolutely ridiculous imho. How the hell was I supposed to know? This is beyond obscure..

Captain Suave · May 22, 2020

a c i d.f l y said:
only the amount you received is what you're liable for, but because you received and transferred funds over $100k, you would still need to file a Form 3250 to document this.

Frenzied Wombat said:
The question is whether the penalty applies due to the fact that only one third of the amount went to me, which would technically be under 100K.

Are you guys sure about that definition of "received"? My understanding has always been that you're only required to report money that becomes yours in a given year, and that passing through your hands in transition doesn't count. It's not like you inherited the full ~240k and then gifted 2/3 to your sisters - that money was never for you and you have documentation of the intended distribution from your grandmother's estate. The fact that it bounced in and out of your account was simply a convenience/error on the part of your uncle and shouldn't change your filing requirements. I suspect that since your portion of the inheritance was under 100k you should be free and clear without having filed a 3250.

I reserve the right to be corrected by a tax professional. You should definitely confirm with one. Those penalties are fucking draconian.

a c i d.f l y · May 22, 2020

If it goes through your bank account, yeah (banks report these transactions, and if you get audited it'll get flagged). And the Form 3250 specifically calls out the handler/distributor of said inheritance. I'll reach out to my CPA uncle in Texas to see if he's handled anything like this. Betting he has having dealt with many rich af sports bros.

Captain Suave · May 22, 2020

a c i d.f l y said:
And the Form 3250 specifically calls out the handler/distributor of said inheritance.

Just out of curiosity, could you point out that language? I saw quite a lot about distribution in the parts concerning foreign trust activity but nothing specific for distributing bequests, either in the actual form or the instructions. This might be relevant for me in processing my foreign grandmother's estate this year.

As far as the bank reporting, the bank doesn't know that this is a bequest, simply that there was a large transfer from his uncle. That shouldn't automatically put him in trouble with regard to 3250.

a c i d.f l y · May 22, 2020

Under section C, "directly or indirectly". I could be misinterpreting it, since legal lingo isn't perfectly clear. It could mean the other parties who are receiving funds "indirectly". They've still received something. I don't know what the limits are on inheritance/estates/trusts. Everything I've found says anything over $14,000.

The bank doesn't know or care, but deposits over a certain amount are reported. If you get audited and the IRS finds income you didn't claim, you'll need to explain it. Anti-money laundering laws used to require reporting any deposits over $10,000, but that has since been reduced as the cocaine cowboys were setting up daily deposits for $9,000. If you don't get audited, no problem. I've been audited for filing a revision. It fucking sucked, and took over 6 months to get everything sorted because it dealt with filings back to when I was a stupid teenager who had no business filing my own taxes.

Captain Suave · May 22, 2020

a c i d.f l y said:
Under section C, "directly or indirectly". I could be misinterpreting it, since legal lingo isn't perfectly clear. It could mean the other parties who are receiving funds "indirectly". They've still received something. I don't know what the limits are on inheritance/estates/trusts. Everything I've found says anything over $14,000.

The bank doesn't know or care, but deposits over a certain amount are reported. If you get audited and the IRS finds income you didn't claim, you'll need to explain it. Anti-money laundering laws used to require reporting any deposits over $10,000, but that has since been reduced as the cocaine cowboys were setting up daily deposits for $9,000. If you don't get audited, no problem. I've been audited for filing a revision. It fucking sucked, and took over 6 months to get everything sorted because it dealt with filings back to when I was a stupid teenager who had no business filing my own taxes.

I read that "indirectly" as referring to the upstream origination of the funds for the purpose of aggregation towards the 100k threshold. Regardless of whose hands it passes through on the way to the final recipient, the money still counts as coming from the grandmother's estate. For example, FW's sisters indirectly received their inheritance through FW, and FW indirectly received his share through the uncle. If they had received other amounts directly from the estate, everything would still have to be totalled. His sisters having to report the money as coming from the grandmother and not FW is actually why I think he's in the clear.

That's just my reading. As you say, the lingo is unclear. It's definitely worth an expert consultation.

The IRS no doubt knows about the transaction courtesy of the bank, I was just pointing out that they don't necessarily know that it was an estate distribution. It's certainly a candidate for other kinds of scrutiny.

LachiusTZ · May 22, 2020

You rec'd the money in 2017?

Locnar · May 22, 2020

tax related? I STILL have not received my $1200 corona money. I know I qualified and have done my 2018 and 2019 taxes. Are many in this same boat?

Frenzied Wombat · May 22, 2020

a c i d.f l y said:
Under section C, "directly or indirectly". I could be misinterpreting it, since legal lingo isn't perfectly clear. It could mean the other parties who are receiving funds "indirectly". They've still received something. I don't know what the limits are on inheritance/estates/trusts. Everything I've found says anything over $14,000.

The bank doesn't know or care, but deposits over a certain amount are reported. If you get audited and the IRS finds income you didn't claim, you'll need to explain it. Anti-money laundering laws used to require reporting any deposits over $10,000, but that has since been reduced as the cocaine cowboys were setting up daily deposits for $9,000. If you don't get audited, no problem. I've been audited for filing a revision. It fucking sucked, and took over 6 months to get everything sorted because it dealt with filings back to when I was a stupid teenager who had no business filing my own taxes.

You got audited for simply filing an Amended return or was your amendment itself in error and/or expose some serious deficiency? I was under the impression they can't audit more than three years back unless they have indicators of fraud.

LachiusTZ said:
You rec'd the money in 2017?

Yes

I got a referral to a CPA and will be talking to him next week. This requirement is so obscure, out of the realm of knowledge of any non tax autist imho, and the penalties are absolutely ridiculous considering it's non taxable income.. It's fucking "gotcha" level bureaucratic extortion. I've read however that if you can prove that the non reporting wasn't due to "willful neglect", the IRS will waive the penalties. Problem is, reading over some tax lawyer blogs, the IRS almost never does accept it and you gotta go to court. At that point your lawyer fees are probably as much if not more than the penalty itself.

EDIT: JFC reading IRS regs and tax lawyer blogs is like the tax equivalent of researching some medical issue you have on WebMD-- everything sounds like you have or will get cancer. I gotta admit, as a former Canuck, taxes were way easier and far less draconian than here. It may be because unless you are self employed they take everything including the shirt off your back at source, and it's up to you to claw what you can back, but jesus the IRS sounds hardcore.

LachiusTZ · May 23, 2020

Frenzied Wombat said:
You got audited for simply filing an Amended return or was your amendment itself in error and/or expose some serious deficiency? I was under the impression they can't audit more than three years back unless they have indicators of fraud.

Yes

I got a referral to a CPA and will be talking to him next week. This requirement is so obscure, out of the realm of knowledge of any non tax autist imho, and the penalties are absolutely ridiculous considering it's non taxable income.. It's fucking "gotcha" level bureaucratic extortion. I've read however that if you can prove that the non reporting wasn't due to "willful neglect", the IRS will waive the penalties. Problem is, reading over some tax lawyer blogs, the IRS almost never does accept it and you gotta go to court. At that point your lawyer fees are probably as much if not more than the penalty itself.

EDIT: JFC reading IRS regs and tax lawyer blogs is like the tax equivalent of researching some medical issue you have on WebMD-- everything sounds like you have or will get cancer. I gotta admit, as a former Canuck, taxes were way easier and far less draconian than here. It may be because unless you are self employed they take everything including the shirt off your back at source, and it's up to you to claw what you can back, but jesus the IRS sounds hardcore.

Administratively, returns with less than a year on statute are usually not picked up.

If filed on time, 4/15/18, statute = 4/15/21 . . .

And its non taxable. Only thing that keeps statute open is 25% understatement (doesnt apply, b/c non taxable), or fraud (doesnt apply b/c you dunno any better and its non taxable).

Nothing I said should be taken as advice on what to do. Lol

Frenzied Wombat · May 23, 2020

LachiusTZ said:
Administratively, returns with less than a year on statute are usually not picked up.

If filed on time, 4/15/18, statute = 4/15/21 . . .

And its non taxable. Only thing that keeps statute open is 25% understatement (doesnt apply, b/c non taxable), or fraud (doesnt apply b/c you dunno any better and its non taxable).

Nothing I said should be taken as advice on what to do. Lol

Unfortunately statute of limitations does not apply to that form..

LachiusTZ · May 23, 2020

Frenzied Wombat said:
Unfortunately statute of limitations does not apply to that form..

If SBSE (Small business / Self Emp) takes it, statutes matter b/c admin.

I couldnt get LB&I to take a 60million asset case I got, so admin prolly wont want to fuck with your 80k.

Those transactions get flagged through BSA (Bank Secrecy Act), and get routed to SBSE (usually, esp for the dollar amt).

There is no "material understatement".

Kinda fucky fucky is what it sounds like. And where is your reference for "immune from statutes"? B/c there is only 1 thing I've ever seen that was statute immune (fraud). And that vanishes into the mist at about 7 years b/c records become impossible to locate.

Curious what the CPA says. I'd say I would ask someone to get a reference for you on it, but shit man . . . no LB&I (Large Bus & Int'l) guys I know work these things. They are all either camped at fortune 500 offices or doing some wacky offshore shit.

I've never even met anyone that works estates, guessing its like 2 groups for the whole country.

LachiusTZ · May 23, 2020

Frenzied Wombat

IRC 6039F(c)(2) provides that no penalty shall apply for failure to furnish the required information if the U.S. person shows that the failure is due to reasonable cause and not to willful neglect.

Any audit would require the agent to consider reasonable cause. Provided you did not rec any other bequests in any other open year.

I'd dig up some other junk for you, but its fucking Saturday, kid just went to bed, and I'm going to go get my dick wet.

Captain Suave · May 24, 2020

LachiusTZ said:
And where is your reference for "immune from statutes"? B/c there is only 1 thing I've ever seen that was statute immune (fraud). And that vanishes into the mist at about 7 years b/c records become impossible to locate.

Instructions for Form 3520 (12/2023) | Internal Revenue Service

www.irs.gov

Relevant text is in second note after linked subsection.

"If a complete Form 3520 is not filed by the due date, including extensions, the time for assessment of any tax imposed with respect to any event or period to which the information required to be reported in Parts I through III of such Form 3520 relates will not expire before the date that is 3 years after the date on which the required information is reported. See section 6501(c)(8)."

tldr; The statute is three years from the date of proper reporting of the foreign activity (if required), regardless of when that activity occurred or if you previously did not report or reported improperly that activity.

LachiusTZ · May 24, 2020

Captain Suave said:
Instructions for Form 3520 (12/2023) | Internal Revenue Service

www.irs.gov

Relevant text is in second note after linked subsection.

"If a complete Form 3520 is not filed by the due date, including extensions, the time for assessment of any tax imposed with respect to any event or period to which the information required to be reported in Parts I through III of such Form 3520 relates will not expire before the date that is 3 years after the date on which the required information is reported. See section 6501(c)(8)."

tldr; The statute is three years from the date of proper reporting of the foreign activity (if required), regardless of when that activity occurred or if you previously did not report or reported improperly that activity.

Yeah, so like a nonfiler. Just odd mechanism for how obscure etc.

Crap like this is why I don’t want to work int’l returns.

TJT · May 24, 2020

Frenzied Wombat said:
Decided to necro this one as it was the least old of the tax threads..

Any CPA's or tax attorneys here? I'll inevitably be engaging one locally, but wouldn't mind a headstart on some potential anxiety reduction.

Here's the scenario:

Back in 2017 my grandmother in Canada passed away and had a Canadian life insurance policy that was taken out by my mother and two uncles decades ago. My mother pre-deceased my grandmother, dying in 2011, and me and my three sisters basically became the beneficiaries of her 1/3 portion of the life insurance policy. When the insurance provider paid out, for whatever reason they did not send me and my sisters (who all live in the US) individual checks based upon the beneficiary breakdown, they sent the entire sum to one of my uncles in Canada (about 500K or so). So for the sake of simplicity, and so he didn't have to send four international wires, he simply wired me and my sisters portion to me directly, I kept my share, and wired the remainder to my three sisters across the country. The approximate total amount of the wire was 250K (my uncles had taken loans against my grandmothers assets over the years, so we were owed more than 1/3) and my share was about 80K. At the time I didn't think anything about it-- I simply googled whether foreign inheritances are considered taxable income, it said it wasn't, and I called it a day. Likewise, "have you received any foreign non trust non taxable income" was never a question that my tax guy ever asked.

So flash forward to today, where for the first time in like six years I decided to do my taxes on my own. I realized after I E-filed with Turbotax that I made a booboo on my deductibles, claiming a deduction that wouldn't be valid for this year (wrong year charitable donation), and looked into what I'd need to do to correct it. A 1040X sounded like an audit invitation, but I discovered there is something called a "superseding return" that if filed before the tax deadline, basically "wipes out" your first filing and replaces it, rather than amending it. It's based on some Supreme Court case the IRS lost. So between the Coronavirus extension, and the extension I filed, I'm well within the deadline to file a superseding return.

In any case, while I was researching the superseding return details I came across some article about various ways the IRS fucks people with little known gotchas or obscure tax requirements. One of them was failing to file form 3250 for income from a foreign trust, bequeathment, or gift. It's not even part of the standard tax return, but an "international" return that must be filed by mail. It would appear that even if the income is not taxable, it must be reported if it's in excess of $100,000, and supposedly the IRS gets all bank records of these transactions. Worse, it appears to be immune from the statute of limitations of three years on audits, so after reading some stories it appears the IRS likes to wait it out for as long as possible to maximize penalties, then mail you a letter demanding the maximum. For gifts and bequeathment, that is 5% per month up to a max 25% of the amount transferred-- so in my case like 60K or so at this point.

So the question is, what should I do and how fucked am I? Does the fact that the sum wasn't entirely for me, and instead split amongst my sisters, bringing the amount to under 100K for me myself give me an "out"? Should I just hope they never send me a letter one day since technically the penalty has already been maxed?

Dude. Just find some tax office to fix it for you. I made a booboo that the IRS wanted $20k for. Paid some Vietnamese lady like $150 and I owed them nothing.

Death and... Taxes.

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