AAM Washington Hotline – June 29, 2021


Advance Child Tax Credit Eligibility Assistant Tool

On June 22, 2021, the IRS launched new online tools to assist individuals who qualify for Child Tax Credits (CTC). The Advance Child Tax Credit Eligibility Assistant tool enables you to answer simple questions to determine if you qualify to receive the advance payments. The Child Tax Credit Update Portal allows you to unenroll or opt out of the monthly payments.

IRS Commissioner Chuck Rettig spoke favorably about the new Child Tax Credit tool. He noted, “This new tool provides an important first step to help people understand if they qualify for the Child Tax Credit, which is especially important for those who do not normally file a tax return. The eligibility assistant works in concert with other features on IRS.gov to help people receive this important credit. The IRS is working hard to deliver the expanded Child Tax Credit, and we will be rolling out additional help for taxpayers in the near future. Where possible, please help us help others by distributing CTC information in your communities.”

There are several sections in the new tool on IRS.gov that determine eligibility. In order to use the new online tool, you should have your 2020 or 2019 tax return. If you do not have a tax return, you should have W–2 or Form 1099 income statements. You also may need to estimate adjustments to your income.

The four sections are General, Status & Income, Qualifying Children and Results.

1. General — The two general questions ask whether you claimed the Child Tax Credit on a 2019 or 2020 tax return and whether you had a home in the United States or a U.S. Territory for more than half of 2019 or 2020. If you qualify, you may go to the next section.

2. Status & Income — The next section asks for your filing status and modified adjusted gross income. You may click on a help button to learn about basic income modifications. If you are within the income limits for your filing status, you may go on to the next screen.

3. Qualifying Children — The third section asks for the number of children you reported on your tax return (or in the Non–Filers tool) who are under age 5 at the end of 2021. It also asks for the number of your children who are ages 6 through 17 at that time.

4. Results — Based on your answers, you may qualify for half of the Child Tax Credit for each child. The six advance payments will be distributed during the middle of each month in the second half of 2021. Each qualifying child age 5 or under will produce a benefit of $300 per month or $1,800 total. Qualifying children between ages 6 and 17 will produce a $1,500 benefit paid in six installments of $250. The benefits are reduced if you are a single individual with a modified AGI over $75,000 or a married couple filing jointly with income over $150,000.

Charitable Conservation Easement Program Integrity Act

On June 24, 2021, the Charitable Conservation Easement Program Integrity Act was introduced in the House and the Senate. Representative Mike Thompson (D–CA), Chair of the House Ways and Means Subcommittee on Select Revenue Measures, introduced the bill in the House.

Thompson stated, “The Charitable Conservation Easement Program has been used for years to incentivize conserving our public lands and charitable giving. The program works, it is one of the most efficient land conservation tools at our disposal, and it has been a priority of mine for nearly two decades. That is why I have reintroduced the Charitable Conservation Easement Program Integrity Act, a bill to protect the integrity of the program from the actions of a small minority of bad actors. This legislation prevents bad actors from abusing the Charitable Conservation Easement Program, which costs taxpayers billions of dollars. I look forward to advancing this legislation to continue protecting public lands for our next generation.”

The companion Senate bill was introduced by Senator Steve Daines (R–MT) and is cosponsored by Senators Ron Wyden (D–OR), Chuck Grassley (R–IA) and Debbie Stabenow (D–MI).

The Act is intended to reduce abuses of the charitable conservation easement deduction. It limits the value of the deduction for syndicated conservation easement partnerships. Rep. Thompson claims that many partnerships have been “grossly inflating the value of that development potential and offering investors a share of the tax deductions far in excess of their investments.” The Act reduces the potential for abuse by creating a maximum deduction of 250% of the total amount of investments.

The Partnership for Conservation (P4C) is an organization that opposes the Act. Robert Ramsay, P4C President, published a statement to oppose the Charitable Conservation Easement Program Integrity Act.

Ramsay noted, “This unfair bill represents one of the worst tax policy proposals we have seen in decades. This proposed legislation will hike taxes on thousands of taxpayers retroactively, forcing them to amend their income tax returns from 2016 through 2020 — and retroactively imposing on them significant interest and penalties. Retroactively rewriting the law to increase taxes and penalties — in this case by five years, is particularly egregious.”

Editor’s Note: The reintroduction of this bill and the influence of Senate Finance Committee Members indicate that this Act may pass in 2021. It is significant that both Senator Wyden and Senator Grassley have thrown their support behind the bill. While the IRS has 80 partnership conservation cases pending in Tax Court, the Senators believe that more action is required.

Easement Charitable Deduction Denied

In TOT Property Holdings LLC et al. v. Commissioner; No. 20-11050 (“TOT Holdings”), the Eleventh Circuit affirmed a Tax Court decision that disallowed a charitable deduction for a gift of a conservation easement. The Circuit also affirmed a 40% penalty for gross valuation misstatement.

TOT Holdings acquired 652 acres of real estate in Van Buren County, Tennessee. On December 10, 2013, it transferred nearly the entire ownership interest to a syndicated partnership, PES Fund VI, LLC. The consideration for the sale was $1,039,200. On December 27, 2013, TOT Holdings deeded a conservation easement to Foothills Land Conservancy. The deed included language to cover the potential for judicial extinguishment of the easement, but the language added in a phrase that stated, “the fair market value of the Property unencumbered by this Easement (minus any increase in value after the date of this grant attributable to improvements).” The partnership filed a tax return and claimed a charitable deduction of $6.9 million. The IRS denied the deduction and assessed a Section 6662 40% penalty for gross valuation misstatement.

The Tax Court determined that the judicial extinguishment formula was inconsistent with Reg. 1.170A–14(g)(6)(ii), which requires that a judicial extinguishment provision must provide a proportionate interest to the nonprofit. The formula that reduced the charitable interest by the value of improvements was not permissible. In addition, while the initial reported deduction was $6.9 million, the TOT Holdings expert at trial, Mr. Wingard, claimed the value was approximately $2.7 million. The IRS appraiser, Mr. Barber, valued the easement at $496,000. Because there was a gross valuation misstatement, the Sec. 6662 40% penalty was applicable.

The Eleventh Circuit agreed that Reg. 1.170A–14(g)(6)(ii) applied and did not permit “any increase in value after the date of the grant attributable to improvements” to be subtracted from the nonprofit’s extinguishment proceeds. While there was a savings clause in the deed, the Eleventh Circuit noted that savings clauses are not enforceable and therefore did not save the charitable deduction.

The sale of the property by TOT Holdings to the syndicated partnership about two weeks before the easement deed for a value near the amount determined by the IRS appraiser indicated that the IRS valuation was correct. Therefore, the Court accepted the IRS valuation and affirmed that the 40% gross misstatement of value penalty was applicable.

Applicable Federal Rate of 1.2% for July — Rev. Rul. 2021-12; 2021-27 IRB 1 (16 June 2021)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2021. The AFR under Section 7520 for the month of July is 1.2%. The rates for June of 1.2% or May of 1.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.