Washington News

The Internal Revenue Service (IRS) recently reminded taxpayers that they can file their 2024 returns at no cost. The IRS Direct File program has been enhanced and expanded this year to be available in 25 states. There are multiple benefits for taxpayers who want to use the free Direct File program.

1. How To Direct File — The Direct File program is available in English or Spanish. Taxpayers may import data from an IRS account and use a step-by-step method to complete their return. Many taxpayers will also have a state return option available. There is IRS customer support available in both English and Spanish.

2. Participating States — The Direct File program is currently available to taxpayers in 25 states. These states include Alaska, Arizona, California, Connecticut, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming.

3. Who Can Direct File — Taxpayers in the 25 participating states can use Direct File. They may report their W-2 income, their SSA-1099 Social Security income, Form 1099-G unemployment compensation or Form 1099-INT interest income. They also can report Form 1099-R retirement income for most distributions from qualified retirement plans and direct rollovers between qualified retirement plans. Direct File is not available for taxpayers with self-employment, rental or business income.

4. Direct File Credits — There are seven credits available: Earned Income Tax Credit, Child Tax Credit, Credit for Other Dependents, Child and Dependent Care Credit, Premium Tax Credit, Credit for the Elderly and Disabled and Retirement Savings Contribution Credit.

5. Direct File Deductions — Taxpayers may claim the standard deduction, student loan interest, educator expense or Health Savings Account contributions. It is not possible to itemize deductions with Direct File.

Direct file is available on IRS.gov. You will need to enter your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN). You can also sign in through your online IRS account. Taxpayers will complete the return through a series of questions. After you review your return, you can submit it electronically. Many states also offer a state return option.

If you have an IRS account, you can import your Identity Protection PIN (IP PIN), your Social Security Number, your Individual Taxpayer Identification Number, your name, date of birth, mailing address, email address and phone number. You may also be able to import your IRS Form W-2 information.

There are limitations for higher income taxpayers. Direct file is limited to taxpayers with wages that are less than $200,000 ($168,600 if you have more than one employer). If you file as Married Filing Jointly, you must have joint wages of less than $250,000, with neither spouse having wages exceeding $200,000. If file as Married Filing Separately, then wages must be less than $125,000.

April 1 Deadline for First RMD

On March 13, 2025, the Internal Revenue Service (IRS) reminded taxpayers who turned 73 in 2024 that their deadline to withdraw the 2024 required minimum distribution (RMD) date is Tuesday, April 1, 2025.

While most RMDs are made by year-end, individuals who were born after December 31, 1950 and reach their required beginning age for RMDs are permitted to make an election to delay the first RMD until the following April 1. In 2024, the required beginning age is 73, taxpayers can delay the first RMD until April 1, 2025. This option exists only for your first year of RMDs.

If you chose to delay the first RMD until April 1, 2025, you will also take a second RMD for 2025 by December 31, 2025. Both these distributions will be taxable this year.

RMDs generally apply to owners of traditional IRAs. This could include the Simplified Employee Pension (SEP) or Savings Incentive Match Plan for Employees (SIMPLE) IRA. It also includes traditional 401(k), 403(b) and 457(b) plans. There is an exception for Roth IRA plans, which are not required to have RMDs.

IRA trustees are required to inform the IRA owner of the RMD amount. The IRA trustee may use Form 5498, IRA Contribution Information, Box 12b, to state the RMD.

Some employed individuals may be able to defer their RMD. If you have a workplace plan and are not a 5% or greater business owner, you may delay your RMD until the following April 1 after retirement.

The IRS has information on RMD frequently asked questions (FAQs) on IRS.gov. Most taxpayers will use the Uniform Lifetime Table III. However, married taxpayers with a spouse more than 10 years younger may use a separate calculation for the RMD. The approximate distribution is the balance divided by the distribution period of 26.5 years for age 73. This equals approximately 3.8% of your total retirement plan balance, but the actual RMD is calculated to the exact number.

Deduction Denied with No Qualified Appraisals

In William J. Cade et al. v. Commissioner; No. 7723-23L; T.C. Memo. 2025-20, the Tax Court determined that a charitable deduction did not qualify because there was not a qualified appraisal or qualified appraiser. However, the court did allow the taxpayer to proceed to trial on the reasonable cause defense.

Taxpayers reported a tax bill of $293,822 in 2019. There was a balance due of $89,013 and that payment was not enclosed with their return. The IRS filed a Notice of Federal Tax Lien and taxpayers requested a hearing. At the hearing, they submitted an amended tax return and claimed an “overlooked charitable deduction” that offset their tax liability. The deduction of $284,553 was for gifts of personal clothing, granite cobblestones and vinyl tile to Victory Christian Church of Albany, New York. The cost basis for the donated items was approximately $4,330. The amended return included Form 8283, Noncash Charitable Contributions. The appraisers were listed as a "former owner, army store,” a "member” and "operations supervisor.” The Donee Acknowledgment was claimed to be from a representative of the church, but the signature was illegible.

IRS Appeals Officer (AO) Matthews from Tampa, Florida handled the appeal. He requested a contemporaneous written acknowledgment (CWA) which was provided on January 9, 2023. The CWA signature was illegible and there was no name or title.

AO Matthews offered to permit a cost basis deduction for the gifts of tangible personal property (TPP) for an unrelated use. Counsel for the taxpayers declined that offer. The IRS then issued a Notice of Determination that the deduction was denied because the value was over $5,000 and there was no adequate CWA or qualified appraisal.

Under Section 170(f)(8)(A), a gift of $250 or more requires a CWA from the nonprofit. The CWA must state that "no goods or services were provided in consideration for the gift." The CWA must also be received prior to filing the tax return. The court noted that Form 8283 could not serve as the CWA, as argued by the taxpayers.

The taxpayers were also required to obtain an appraisal completed by a qualified appraiser. The appraiser must be qualified to appraise the type of property gifted. The statements from the three appraisers were not sufficient under Section 170(f)(11)(E). Appraisals are required to be obtained prior to filing the tax return on which the charitable contribution appears. The appraisals were dated January 5 and 6, 2023, over three years after the gift date.

An appraiser must have met the requisite education and experience or a designation from a professional appraiser organization and regularly perform appraisals for compensation. Section 170(f)(11)(E)(i). The appraiser must have professional or college-level coursework and two or more years of experience in valuing the type of gifted property.

The Tax Court noted, "None of the individuals hired by petitioners meets these requirements." They did not regularly perform appraisals for which they received compensation. Therefore, they are not qualified appraisers, and the appraisals are not acceptable.

Under Section 170(f)(11)(A)(ii), there is an exception “due to reasonable cause and not to willful neglect." Reasonable cause is a question of fact. Therefore, the motion by the IRS for summary judgment on the deduction is granted with respect to the failed appraisals, but taxpayers can proceed to trial on the question whether or not the reasonable cause is sufficient to permit the charitable deduction.

Editor’s Note: A charitable deduction for tangible personal property donated for an unrelated use is limited to cost basis. There was no indication that the church would use the clothing, granite cobblestones and tiles for a related use. This deduction failed on multiple grounds.

Applicable Federal Rate of 5.4% for March: Rev. Rul. 2025-6; 2025-11 IRB 1 (19 February 2024)

The IRS has announced the Applicable Federal Rate (AFR) for March of 2025. The AFR under Sec. 7520 for the month of March is 5.4%. The rates for February of 5.4% or January of 5.2% 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 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”