ALBUQUERQUE, N.M. — Many employers try to offer incentives, sometimes through their health plan, for employees to exercise and take other actions to maintain proper health. My son-in-law’s health plan offers reimbursement of health club fees provided the employee visits the club at least 60 times during the year.
In recent technical advice to its agents, the IRS has developed a new reason to exercise. Specifically, IRS agents that need to use some form of public transportation to visit a taxpayer may need to walk the final leg of the trip.
Here’s the interesting problem. Tax return information is confidential. Tax return information can include the taxpayer’s identity as well as whether the taxpayer might be under examination by the IRS.
When an IRS agent visits a taxpayer, it could be to conduct an examination, to collect taxes, or to pursue a criminal investigation of the taxpayer. Knowledge that an IRS agent is visiting a taxpayer could then be “tax return information.”
So if an IRS employee takes a bus or a light rail to the taxpayer’s location, there would seemingly be no way that anyone could know that the agent is visiting a particular taxpayer. But if the agent takes an Uber or Lyft, or even has a friend or family member drive them, they may have to provide a specific address to the driver.
If the passenger’s IRS employment is known to the driver, or could be inferred in some manner, the IRS employee may need to be dropped off some distance from their targeted address. They would then need to walk that final leg.
Many IRS examinations these days are “correspondence audits,” in which the taxpayer gets a letter from the IRS explaining the issues involved. No IRS employee needs to visit the taxpayer.
Is the delivery by a postal worker disclosure of taxpayer information? No, because the IRS return address would not allow a reasonable inference that the addressee is subject to examination, collection, or criminal investigative activity.
But if you have a friend who is an IRS agent, and you observe them walking during the workday, you may want to do them a favor and not ask if they want a ride.
Q: My mother passed away at age 87 and I am the beneficiary of her IRA accounts. She has been taking mandatory distributions and in the past three years has made direct transfers to a charity. This creates a tax benefit for her. I am in the process of transferring the IRAs to an inherited IRA. I am 61 years old. The account balances in the IRA are approximately $430,000. Although this is now “my” money, I would like to continue to pursue my mother’s charitable objectives for the IRA funds. My question is whether I will be able to make this direct transfer to charity like my mother did and get the same tax benefits?
No, unfortunately you will not be able to do so. What you reference is called a “qualified charitable distribution,” or “QCD.” The QCD allows the IRA distribution to be excluded from income.
No itemized deduction for a charitable gift is allowed for a QCD. But the tax treatment is favorable because it reduces taxable income without the need to itemize deductions. It also reduces your adjusted gross income (AGI) which can avoid certain tax “penalties” for high income taxpayers.
There are technical requirements for the form of a QCD. The custodian needs to transfer the funds directly to the charity or issue a check made payable to the charity that you then deliver. You cannot receive the funds first and then make the charitable transfer.
But there is a more basic requirement for a QCD. The taxpayer who makes the transfer must be age 70-1/2 so that they are required to take “required minimum distributions,” or RMDs. Your mother was a candidate for these QCDs. You are not.
You are probably aware that you can now stretch out the distributions over your life expectancy. When you reach age 70-1/2 you will be able to make QCDs. Although there is a requirement that the IRA owner be age 70-1/2, there is no restriction on QCDs from an inherited IRA.
Jim Hamill is the director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at email@example.com.