December 2024
2024 Fiduciary Tax Return Engagement Letter
Dear Client: We look forward to providing you with tax return preparation services this year! The purpose of this letter is to specify the terms of our engagement and clarify the nature and extent of the services we will provide. This way, you know what to expect from us, and we can strive to deliver high-quality, seamless services. We seek to make our tax return process as straightforward and convenient as possible for you. Our goal is to minimize any hassle on your end while also making things as efficient as possible on our end. This allows us to deliver your returns expediently, while also bringing to bear a high level of technical expertise and personal service. It also helps us keep our costs down for all clients. What Services Are Covered under This Engagement? Preparation of U.S. Federal and State Returns With this letter, you are engaging us to prepare your 2024 U.S. and state fiduciary income tax returns. We will do so with the information you furnish to us in the process described below. If you have taxable income or loss in a state or locality other than your resident state, we will generally prepare your nonresident state or locality returns, as well, unless you indicate in advance that you prefer we not prepare these nonresident filings. Preparation of Foreign Bank Account Reports (FBARs) If based on the information you have provided to us, we believe that you have a requirement to file FinCEN Form 114 (otherwise known as a Foreign Bank Account Report or “FBAR”), the preparation of your 2024 FBAR(s) will be covered under this engagement. If you prefer that we not prepare your FBAR(s), you may opt out by checking the appropriate box in your annual tax questionnaire or notifying us in writing. Preparation of Forms 3520 and 3520-A (Foreign Gifts, Foreign Inheritance, Certain Foreign Trusts) If based on the information you have provided to us, we believe that you have a requirement to file Form 3520 and/or Form 3520-A, the preparation of those forms will be covered under this engagement. We will prepare those forms in conjunction with your fiduciary tax returns, under the same terms. What Is the Scope of This Engagement? This engagement is limited to the professional services outlined above. We will not prepare any tax returns other than those identified above, without your written request, and our written consent to do so. Also, we will not prepare financial statements or perform valuations of any kind. We will prepare the above-referenced tax returns solely to assist you with your tax filing obligations with the IRS and applicable state and local tax authorities. Our services are not intended to benefit or influence any third party, including any entity or investment which may seek to evaluate your creditworthiness or financial strength. Note on Bookkeeping Assistance In some cases, we may determine that you require accounting and bookkeeping assistance solely for the purpose of preparing the tax returns. These services are typically outside the [...]
November 2024
October 2024
IRS Gives Additional Time To File (and Sometimes To Pay) to Taxpayers Affected by 2024 Disasters
The IRS granted relief to taxpayers affected by the numerous hurricanes, fires, and other disasters in the US and Israel during 2024, offering additional time to file some 2023 and 2024 tax returns (and other reports) and, for some types of tax payments, to pay the estimated or actual taxes due. Which disasters are covered by IRS relief provisions? The IRS issued wave after wave of relief measures in 2024, in response to numerous federally declared disasters, including the recent tropical storms and hurricanes that made landfall in Texas and Florida (and continued their path through the United States), such as Hurricane Milton (October 2024), Hurricane Helene (September 2024), Tropical Storm Francine (September 2024), Hurricane Debby (August 2024), and Hurricane Beryl (July 2024). Other types of disasters were also addressed including the West Coast floods and fires, Alaskan disasters, and terrorist attacks centered in Isreal, Gaza, and the West Bank. What types of relief were offered? In most cases, the relief consisted of: Additional time to file any 2023 tax returns that were due during specific time periods (or had valid extensions, with the extended due date during that time period) Additional time to file 2024 tax returns and certain other 2024 filings Additional time to pay some 2024 estimated tax payments, quarterly payments, or other tax payments The relief did not apply to: 2023 tax payments that were due prior to the disaster period (even if an extension had been granted to file the tax return) In addition, other relief has been provided (as explained below) for reports other than tax returns, including: Additional time to file 2023 FinCEN Form 114, Foreign Bank Account Reports (FBARs) Additional time to complete some FinCEN Beneficial Ownership Information (BOI) reporting Who generally qualifies for relief? How do you prevent penalties for utilizing the postponement periods? Those qualifying for relief include individuals and businesses, including: Taxpayers whose address of record is in a federally declared disaster area – in these cases, you qualify for automatic relief without needing to call any agency. Taxpayers who are located in a disaster area but their address of record is not – in these cases, you should call the number on the notice to have penalty abated. Taxpayers who are located outside disaster area but whose records located within disaster area – you should contact the IRS at 866-562-5227. Relief workers not residing in a disaster area – you may qualify for postponement if you are affiliated with recognized government or philanthropic organizations. Disaster area tax preparers with clients located outside the disaster area may also choose to use bulk requests from practitioners for disaster relief. Summary of new deadlines for IRS filings and payments For 2023 individual and business tax returns, the IRS extended the filing deadline (but not the deadline to pay 2023 taxes still outstanding) until: November 1, 2024, for parts of Arkansas, Iowa, Kentucky, Mississippi, New Mexico, Oklahoma, Texas, and West Virginia February 3, 2025, for all of Louisiana, Vermont, Puerto Rico, and [...]
IRS Releases the 2025 Inflation Adjustments
Every year, the IRS makes inflation adjustments to various items, such as the standard deduction, estate tax unified credit, tax brackets, etc. On October 22, 2024, the IRS released Rev. Proc. 2024-40 with the 2025 inflation adjustments. Here are some key inflation adjustments for calendar year 2025: The top individual income tax bracket (37%) for married filing joint taxpayers starts at taxable income over $751,600. The standard deduction for married filing joint taxpayers is $30,000. The standard deduction for individual taxpayers is $15,000. The Exit Tax five-year income tax liability test average is $206,000. The Exit Tax mark to market tax lifetime exclusion is $890,000. The Foreign Earned Income Exclusion (FEIE) is $130,000. The Unified Credit against the Estate Tax is $13,990,000. The Annual Gift Tax Exclusion is $19,000. The amount of serious tax delinquent tax debt that triggers the revocation or denial of a United States Passport is $64,000.
IRS Requests Comments on Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures
The IRS is seeking comments and input from the general public on the main programs taxpayers can use to obtain penalty relief for late reporting of foreign financial assets and foreign income. Background Generally, when individuals or businesses fail to report foreign financial assets and/or foreign income on time, they can take advantage of several different types of IRS Amnesty Programs to assist with the remediation of that reporting, at reduced penalty rates. This is known as Offshore Voluntary Disclosure, and it stems from a long-standing IRS procedure known as Voluntary Disclosure Practice. Currently, Voluntary Disclosure Practice is used by taxpayers who have indicia of willfulness that may involve criminal liability. “A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. Form 14457 is used for all voluntary disclosures.”1 For taxpayers who are considered “non-willful” (which generally includes no indicia of criminal liability), the IRS offers the Streamlined Filing Compliance Procedures (SFCP). SFCP then has two different versions—one for domestic filers, and one for foreign filers. The domestic version is known as the Streamlined Domestic Offshore Procedures (SDOP) and uses IRS Form 14654 for all disclosures. The foreign version is known as the Streamlined Foreign Offshore Procedures (SFOP) and uses IRS Form 14653 for all disclosures. What input is the IRS seeking via its request for comments? In the Federal Register for Monday October 21, 2024, with regard to the burden of data collection for SFCP and SDOP, the IRS (“agency”) requested comments and input from the general public on the following topics: Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility? The accuracy of the agency’s estimate of the burden of the collection of information. Ways to enhance the quality, utility, and clarity of the information to be collected. Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. The IRS has asked that all comments be provided on or before December 20, 2024, to: Andres Garcia Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224 OR By email to pra.comments@irs.gov Include OMB control number 1545–2241 or Voluntary Disclosure Practice and the Streamlined Filing Compliance Procedures, in the subject line. What does The Wolf Group recommend? Comments, observations, and suggestions from taxpayers and/or tax practitioners that have either used these forms and/or amnesty programs are very helpful for future updates by the IRS. The IRS cannot make these forms clearer, easier to complete, or institute other potential upgrades without constructive feedback. The Wolf Group will be submitting its comments and suggestions, and we urge our clients, fellow tax practitioners, and interested individuals in the general public to do so, as well. The Wolf Group is [...]
IRS Will Not Assess Automatic International Civil Penalties for Late-Filed Forms 3520 and 3520-A
On October 24, 2024, IRS Commissioner Daniel Werfel announced that the IRS will no longer automatically assess international civil penalties for late-filed Forms 3520 and 3520-A.1 Background on Forms 3520/3520-A filing requirements and penalties Internal Revenue Code §6048 requires United States tax residents and citizens to report beneficial interests and/or ownership in a foreign trust (grantor or non-grantor) on IRS Forms 3520 and 3520-A. Failure to file Form 3520 may result in a penalty equal to the greater of 35% of the gross reportable amount or $10,000. Failure to file Form 3520 is also subject to $10,000 in continuation penalties. Failure to file Form 3520-A may result in a penalty of the greater of $10,000 and 5% of the gross value of the trust’s assets. Internal Revenue Code §6039F(a) requires US tax residents2 and citizens to report foreign gifts or bequests that exceed US$100,000, in aggregate, within the same calendar year on IRS Form 3520, Part IV. Failure to file Form 3520, Part IV, on time may result in a penalty equal to 5% of the total amount of such foreign gifts, and it applies for each month that failure to report continues (not to exceed a total of 25%). No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause3 and not willful neglect. Since calendar year 2018, the IRS has had an internal practice of automatically assessing late-filed penalties on Form 3520, Part IV, without considering attached reasonable cause statements: “In the foreign gift context, the penalties can be huge; over the years 2018-2021, even taxpayers who reported $400,000 or less in income received an average penalty of over $235,000. Over this same four-year period from 2018-2021, the IRS abated IRC §6039F penalties assessed with respect to Form 3520, Part IV, totaling more than $179 million. The abatement rate was 67 percent of the penalties assessed and 78 percent of the dollars assessed.”4 What changed in October 2024? On October 24, 2024, IRS Commissioner Daniel Werfel announced that the IRS will no longer automatically assess international civil penalties for late-filed Forms 3520 and 3520-A. Instead, the IRS will consider attached reasonable cause statements before making a determination to assess an international civil penalty (as indicated above). The IRS has published guidance related to "reasonable cause" in the Internal Revenue Manual (see IRM §§ 20.1.1.3.2.1 –20.1.1.3.2.8). In March 2023, the IRS conceded a dispute with a taxpayer in the “Polish Lottery Case”5 regarding the late filing of Form 3520, Part IV. Many practitioners wanted to see the case litigated because the dispute over what constitutes “reasonable cause” in the context of a late-filed Form 3520, Part IV, would have been central to the matter. To date, the art of crafting proper reasonable cause defenses is left to the purview of tax practitioner experience, the taxpayer’s facts and circumstances, the aforementioned sections of the IRM, and an IRS Practice Unit from 2021.6 What are the current options for obtaining relief from [...]
September 2024
Andrea Li
Areas of Expertise Tax planning Tax return preparation Income tax reporting for businesses International tax for individuals Education MS, Accounting, University of Texas at Dallas MBA, University of the Cumberlands BS, Accounting, Tiangong University Languages Spoken English Mandarin Andrea is a Senior Tax Specialist at The Wolf Group with more than a decade of experience providing international tax services to business entities, entrepreneurs, and high-net-worth individuals with cross-border interests. She helps clients navigate complex international tax matters, fulfill their US reporting obligations, and assess strategies to optimize their global tax positions. In her day-to-day role at The Wolf Group, she: Prepares tax returns for corporations, partnerships, S corporations, and owners of US LLCs and other business entities Works closely with our high-net-worth individuals whose tax planning and tax returns involve significant international complexities (Forms 5471, 5472, 8865, 8621, 3520/3520-A, etc.) Assists individuals with complex cross-border situations, including US citizens, expatriates, green card holders, international organization employees, various visa holders, and US nonresidents Leads new clients in becoming voluntarily tax compliant through the IRS Streamlined filing compliance procedures, both domestic and foreign Prior to joining The Wolf Group, she worked at a national public accounting firm preparing individual and corporate returns, as well as required tax forms. She also resolved clients’ tax controversy issues. Outside of work, she enjoys ballet dancing, playing and collecting board games, and spending time with her cat. She can often be found cooking traditional Chinese food.
August 2024
June 2024
A Fabulous Journey
Len Wolf at his retirement celebration, June 16, 2024 By Len Wolf, founding Partner of The Wolf Group, P.C. A few of you will remember coming to see me in my condo in 1983, the year I established the Firm, then called Leonard S. Wolf, CPA. If you do, you may also recall the diplomas and professional certificates hanging on my dining room wall, likely hung 15 minutes prior to your arrival to replace the residential pictures that hung in their place the rest of the time. Then, from a tiny office without a working building elevator above the Social Security Administration offices in Falls Church to our beautiful new suite of today in Fair Lakes, our accommodations have improved. My vision from the start was to establish a growing Firm that would not compromise on doing what was right, and best, for our clients. Together with a lot of help from some wonderful people with whom I was fortunate to connect, especially Bob Len, my partner since 1988, we built a professional practice on a foundation of trust, integrity, honesty and fair play. We built an extended family of incredible clients, staff members and friends of the Firm. After 41 memorable and extraordinarily fulfilling years, I will be pursuing a “life after career” beginning July 1, 2024. Over the past half dozen years, we have been transitioning to the next generation of leadership. How fortunate we’ve been to have Mish Santa, J.D., LL.M, TEP as our International Tax Director and Jen Marenberg, MBA, CPA as our Chief Executive Officer in recent years. I have every confidence that they will, as they have to date, sustain the competence level of the services we provide, while retaining the values that have been fundamental in the growth of The Wolf Group, P.C. I have often said that I was blessed to be one of very few folks I know that can say that I hardly ever woke in the morning with regret that I had to go to work. Involvement in The Wolf Group has truly been a labor of love for me. Whether you have been a client or friend (or both) for 41 years or 41 days, I thank you for your trust in The Wolf Group. I truly value our relationship and wish you only the best in the years ahead. Len Wolf
