Income Tax News

Nebraska’s county assessors hear the complaints every June: “You just socked me with higher property taxes by raising my valuation.”

But that’s not the end of each year’s annual property tax story. It’s just the beginning.

Taxable values for 2024 indeed went up as June began for three Scottsbluff-Gering area homes and three Scotts Bluff County agricultural operations that the Star-Herald began tracking last year.

But total preliminary real estate valuations countywide rose an average of just 1.8%, from $3.34 billion to just over $3.4 billion. That doesn’t yet include the values of taxable personal property and “centrally assessed” property, which won’t be known until late August.

Taxable values for 2024 increased by 12.9% for a home near Gering’s Legion Park and 7.3% for a home of similar age, features and valuation in Scottsbluff’s Westmoor neighborhood. But another similar home in west Terrytown gained just 1.3%.

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In the county’s rural areas, combined taxable values jumped 12.4% for a seven-parcel farming operation southwest and southeast of Melbeta and 10.6% for a nine-parcel operation northwest of Mitchell. But a seven-parcel ranch southeast of Lyman saw its total valuation rise only 0.3% for 2024.

The newspaper’s analysis of these six property owners’ 2023 property tax situations — reflected in this story’s accompanying charts — found that none of them paid anywhere near the tax bill that last year’s taxable values might have indicated last June.

• Most or all of their “tax increase” vanished when the County Assessor’s Office finalized local governments’ total 2023 taxable values last August.
• Though all six ended up by October with gross tax increases, their size depended on whether those governments sought more property tax money in their 2023-24 budgets. Some did; others didn’t.
• All property owners automatically received a modest cut to their gross tax bills on their final December tax statements. That’s due to a direct discount paid to counties by the state through the 17-year-old Property Tax Credit Fund.
• All also could have recovered sizable parts of their tax payments to K-12 schools and community colleges by claiming two available credits on their state income taxes last winter. But thousands of eligible Nebraskans have not done so.
• Finally, homeowners who are 65 and older, disabled or surviving spouses of totally disabled veterans could have cut their tax bills even more — or wiped them out altogether — if they sought state homestead exemptions. One of the Star-Herald’s sample homeowners has done just that for five years.

Those same conditions are found year after year in North Platte and Lincoln County in similar analyses by the North Platte Telegraph.

Protests and exemptions

What can property owners do?

Now’s the time to apply or reapply for homestead exemptions or protest your valuation if you believe it’s inaccurate, said Robert Simpson, who became Scotts Bluff County assessor in March after a career in financial services. Both must be sought for 2024 by June 30.

“It’s very plausible that if there are (building) condition issues or things (on the property) have changed, I could agree the valuation should be lowered,” Simpson said.

For example, buildings that no longer exist might still be showing up on Assessor’s Office records. State law requires every property to be physically reviewed once every six years.

So if someone removes a garage, “it’s incumbent on that taxpayer to let us know that because we may not catch up to it for six years,” Simpson said.

Protests must be filed with County Clerk Kelly Sides for decisions by county commissioners, who have until July 25 to rule on them. Their decisions may be appealed to the state’s Tax Equalization and Review Commission.

Simpson said his staff also is reminding past homestead exemption recipients to refile for 2024.

They don’t want eligible people on fixed incomes to miss out on cutting their tax bills, he said.

“It’s one of the things we do that helps the community and especially the most vulnerable people.”

‘Tax tracker’ explained

The Star-Herald debuted its step-by-step “tax tracker” approach for the 2023-24 “budget season” to illustrate how each local budget and taxing decision generally affects the final shape of property tax bills.

We began last fall by choosing one home apiece of similar ages, features and taxable values in Scottsbluff, Gering and Terrytown to track as local officials set their budgets each year.

In December, the Star-Herald reported on the property tax experiences of three multiple-parcel agricultural operations in different parts of Scotts Bluff County. The assembly of their 2024-25 tax bills will be presented alongside those of the sample homes from now on.

Our annual process begins at left on the line graph with the previous year’s gross property tax bills — not counting state tax credits — for each of our sample homes and ag operations.

As each taxable value, tax request and tax rate is finalized, we’ll replace its previous year’s figure with the new one in a spreadsheet.

Doing so yields a series of “interim” tax totals that we compare to show whether a given decision tends to push our sample properties’ tax bills up or down. None are real, of course, until all decisions are made.

Our line graph depicts how the 2023-24 budget season went for our six property owners, along with the relative impacts of 2024-25’s first decisions.

Moving further from left to right:

• Last June brought sharply higher individual 2023 taxable values in Scotts Bluff County. They showed our sample properties’ first “interim” gross tax-bill figures rising 8% to 14% from 2022 for the Star-Herald’s three sample homes and 10% to 35% for the sample ag operations.
• But that alarming trend didn’t last once assessors finalized local governments’ 2023 valuations in late August. Projected tax boosts fell to 3.4% and 1.9%, respectively, for the Scottsbluff and Gering homes and flipped to a 2.7% cut for the Terrytown home. (Similar figures for the sample ag operations aren’t available because we hadn’t yet chosen them in August.)
• Why did June’s suggested huge 2023 “tax increases” shrink or disappear? Because larger total taxable values — the “tax base” — spread the tax burden and hold down ultimate tax-bill growth for any single property.
• However, actual property tax requests in August and September pushed final local tax bills about 3% to 12% higher than 2022 for the Scottsbluff-Gering homes and 2% to 32% higher for the ag properties. Even then, none of the six property owners saw their taxes go up as much as their June valuations hinted.
• Then state tax credits kicked in: the automatic Property Tax Credit Fund discount for all in December, followed by income tax credits — if our sample owners claimed them — for 30% of the tax bills they paid for K-12 schools and 55% for community colleges.
• They probably did claim them, based on Unicameral figures saying that 93% of Scotts Bluff County property owners claimed K-12 tax credits in 2022. But in most Panhandle counties, 40% or more of property owners didn’t.
• All told, five of the Star-Herald’s six sample property owners received property tax breaks of 24% to 30% if they received all three credits available to all Nebraskans.
• But the combination of the west Terrytown home’s homestead exemption and the statewide credits canceled out its gross 2023 tax bill of $3,122.79. Its owners have received a homestead exemption since 2019.

More sales, higher values

Home or land buyers affect taxes, too.

Simpson echoed a mantra uttered by his statewide peers: State law requires annual assessed valuations to be 92% to 100% of market value for most property types and 69% to 75% for ag land.

If sales prices keep rising for homes, businesses and the most coveted pieces of farm or ranch land, assessors have no choice but to raise valuations, he said.

New and used homes for sale in the county remain scarce, Simpson added. “There may be fewer sales, but sales prices continue to be strong and the market value just keeps going up.”

But “if we see in Scottsbluff that we’re 7% outside the (legal valuation) range, we don’t use a broad brush and just raise everybody by 7%,” he said. “We look at neighborhoods. Some may have just a 3% increase. Some may have 10%.”

Irrigated farmland continues to command higher sale prices, Simpson said. Panhandle assessors tell him “the majority of counties with irrigated (land) are seeing the same thing.”

But as our chart moves to the Star-Herald’s first “interim” 2024 tax-bill figures, it includes a one-time situation as well as the year’s new taxable values.

A 2023 state law has handed over almost all funding of Nebraska’s community colleges to the state, which had called on regional property owners to share some of their day-to-day costs.

Starting with this fall’s budget season, community colleges may charge no more than the 2 cents per $100 of taxable value they’ve been allowed for capital construction.

The Star-Herald’s first 2024 tax-bill projection thus accounts both for the new valuations and a reduction in the Western Community College Area’s tax rate to 2 cents per $100 from 2023-24’s nearly 9.9 cents per $100. The actual 2024-25 rate still will be set this fall.

That one-off change has shaved down the upward angle for the Scottsbluff and Gering homes and the ag properties near Mitchell and Melbeta, even before final local tax bases are totaled in August.

The Terrytown home’s tax-bill arrow now points down 2.2%, rather than up 1.3%, ahead of final local tax bases being totaled in August. Similarly, the ranch near Lyman is currently in line for a 4.3% cut rather than a 0.3% boost.

We’ll find out on or about Aug. 20 just how much lower our tax projections will go before local officials’ tax requests play their typically decisive role.

Analysis tests theory: Do ag valuations, taxes rise without end?

Yes, Scottsbluff-area property tax bills are higher – but don’t forget your state credits

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WASHINGTON, D.C. — In a recent announcement, the Internal Revenue Service (IRS) clarified that many payments received by individuals affected by the 2023 train derailment in East Palestine, Ohio, are not taxable.

The IRS determined that the February 3, 2023, derailment qualifies as “an event of a catastrophic nature.” Consequently, several payments made to affected individuals by the common carrier operating the train are considered “qualified disaster relief payments.” By law, these payments are excluded from gross income, provided they cover expenses not paid for by insurance or other reimbursements.

According to the IRS, the common carrier issued Forms 1099-MISC to recipients, indicating which payments are taxable and which are exempt due to their status as qualified disaster relief payments.

Tax-free qualified disaster relief payments include:

• One-time $1,000 “inconvenience” payments to affected individuals.
• Relocation expenses and costs for replacing clothing and personal items.
• Costs associated with repairing or rehabilitating homes and surrounding environments.
• Compensation to homeowners who sold their homes after the derailment.
• Medical expenses.

However, certain payments remain taxable:

• Lost wages.
• Access payments to property owners for remediation and cleaning efforts near creeks and streams.
• Payments to businesses.

Taxpayers do not need to report qualified disaster relief payments on their 2023 tax returns, even if they received a Form 1099-MISC. However, taxable payments must be reported.

For those filing electronically, the IRS instructs taxpayers to attach a PDF titled “EPTDR-East Palestine Train Derailment Relief” to their Form 1040. This attachment should clearly state “East Palestine Train Derailment Relief.”

If filing a paper return, write “East Palestine Train Derailment Relief” at the top of Form 1040 and mail it according to the form’s instructions.

Taxpayers who have already filed their 2023 tax returns and reported qualified disaster relief payments as taxable can amend their returns to claim any refunds owed. They should file Form 1040-X and indicate “East Palestine Train Derailment Relief” both in the attachment (if e-filing) and at the beginning of Part III, Explanation of Changes (if filing on paper).

IRS Decision Provides Financial Relief for East Palestine Train Derailment Victims

This clarification has significant implications. Firstly, it ensures that victims of the East Palestine train derailment are not burdened with additional taxes on relief payments meant to aid their recovery. This decision aligns with the IRS’s broader mission to provide relief and clarity in times of disaster.

For the residents affected by the derailment, this news brings some financial relief. After enduring the physical and emotional toll of the catastrophe, they now face fewer tax liabilities on the assistance they received. This can help alleviate some of the stress and uncertainty surrounding their financial situations.

From a broader perspective, the IRS’s decision highlights the importance of clear and compassionate tax policies in the wake of disasters. By distinguishing between taxable and non-taxable disaster relief payments, the IRS ensures that aid reaches those who need it most without unnecessary complications.

Furthermore, this move underscores the necessity for efficient communication between federal agencies and the public. Clear instructions on how to report and amend tax filings help taxpayers comply with regulations while benefiting from available relief measures.

In summary, the IRS’s clarification regarding the tax status of payments related to the East Palestine train derailment provides vital relief to affected individuals. It reflects a commitment to supporting disaster victims and simplifying the tax reporting process during challenging times. As the IRS continues to refine its disaster response strategies, taxpayers can expect more streamlined and empathetic approaches to handling the financial aftermath of catastrophic events.

For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and Microsoft Start.

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CHICAGO — Governor JB Pritzker signed the 2025 state budget on Wednesday.

Legislators passed the $53 billion spending plan late last week after a near-derailment.

ABC7 Chicago is now streaming 24/7. Click here to watch

Last week, the House approved the $1.1 billion in revenue increases, including a tax hike on sportsbooks and businesses, to balance the $53.1 billion spending plan for fiscal year 2025.

The spending plan passed 65-45, with seven Democrats joining Republicans in opposition.

The revenue plan that capped the voting on the budget-related bills was more of a challenge. House Bill 4951 fell one vote short of passage twice after 4 a.m. due to attendance issues. On the third try – after about an hour of procedural maneuvering by Republicans that left Democrats reeling – the bill passed at 4:43 a.m. with the minimum 60 votes necessary.

“This budget builds on years of economic momentum that is revitalizing communities up and down the state of Illinois,” Pritzker said. “We are on a trajectory of sustainable long term growth.”

READ ALSO | Illinois House sends $53B budget to Gov. Pritzker after near-derailment, pulling all-nighter

Gov. JB Pritzker said last week he’ll sign the plan for the fiscal year that begins July 1, which spends about $400 million more than what he requested in his February budget address. In a statement after its passage, the governor claimed investments made in the budget will grow Illinois’ economy and continue a “track record of fiscal responsibility” while prioritizing working families.

Governor JB Pritzker spoke after he signed the 2025 state budget on Wednesday.

“From expectant mothers and their newborn babies to people with disabilities to veterans to seniors who need our care, we’re keeping our promises to all Illinoisans and the most vulnerable among us,” Pritzker said.

The budget cleared the General Assembly five days after lawmakers had scheduled their spring session’s adjournment, although the May 24 “deadline” was a largely arbitrary date that left a week on the calendar as a contingency plan. Negotiations were complicated by inflation and other spending pressures driving up the expected cost of government, while economists predict the state’s economy will slow in the upcoming fiscal year.

“And there are real dollars in this budget for young people, be it summer jobs, youth employment and violence prevention programs,” said Illinois State Senator Don Harmon, Senate President. “This is a budget that is built on making a difference.”

Still, Democrats approved the spending plan with several votes to spare but no Republican support – as they’ve done every year in Pritzker’s tenure except the first in 2019.

Republicans argued the pace of spending growth – and the fact that some of the revenues raised to pay for it are temporary – set the state on pace for an even tighter fiscal year 2026.

“It’s another bloated budget,” House Republican Leader State Rep. Tony McCombie said. “Every year I say the same thing. This is the biggest budget we’ve ever passed in Illinois $53.1 billion this year, that has close to a billion dollars in tax increases.”

The budget includes $182 million to provide shelter, health care and other services for recently arrived migrants, many of whom have been bused to the state from Texas. And it includes $440 million from the GRF for two programs providing state-funded Medicaid-like benefits to noncitizens, with $189 million from other state funds as well.

The budget does not include money to help the Bears build a new stadium, on the Chicago lakefront.

New revenues

More than $1.1 billion in added revenue was needed to balance the books, so lawmakers extended an expiring cap on corporate net operating losses to ensure that $526 million in tax dollars wouldn’t disappear in FY25. Another $25 million will be raised by subjecting “re-renters” of hotel rooms to an existing state hotel tax.

Sportsbooks will see their current 15 percent tax rate on profits increase via a new graduated structure that will tax between 20 and 40 percent, based on profits. The change is projected to bring in about $200 million to the state’s General Revenue Fund. A 1 percentage point increase to the tax on the state’s video gambling industry would generate an additional $35 million for infrastructure projects next year.

The industry suggested the tax hikes could lead to some companies leaving Illinois. Pritzker called their bluff, pointing to the 51% tax rate in New York.

“They’re not leaving New York, and they’re not leaving the other states,” Pritzker said. “You see we’re the third largest sports betting market for sports betting companies, and we had a much lower tax rate than many of the largest of those markets.”

The Governor noting that while the budget has increased, it only went up at about half the rate of inflation. Republicans concerned that tax hikes on businesses will get passed along to consumers, costing Illinoisans more.

The revenue plan also caps a tax discount claimed by retailers at $1,000 monthly, generating $101 million for state coffers and about $85 million for municipalities.

To appease retailers, lawmakers included a prohibition on financial institutions and credit card companies charging fees on the sales tax and gratuity portion of electronic transactions beginning July 1, 2025.

The Illinois Retail Merchants Association was also given a $5 million line item for workforce grants.

The budget package also freed up about $200 million in revenue by redirecting $150 million from the Road Fund and $50 million from the Leaking Underground Storage Fund to public transit. The move was opposed by organized labor because it diverts Road Fund money to the state’s discretionary spending fund, but Democrats promised it would only happen in the upcoming fiscal year.

District-specific projects have been used time and again to incentivize members to vote for the budget, with the Chicago Tribune tracking at least $150 million in infrastructure spending for lawmaker-led initiatives in the current-year budget. No spokespeople would confirm or deny the amount allocated for lawmaker initiatives.

The final roughly 80 pages of the budget bill contain a long list of projects, most of them ranging from $50,000 to $1 million sums to various specifically named businesses, local governments and other entities.

Infrastructure and more

Despite the diversion of money from the Road Fund, the budget includes $3.5 billion for infrastructure – about $500 million more than what Pritzker had outlined in his February budget proposal.

That includes $500 million to support the development of a regional quantum information science and technology campus, allocated from a specific economic-development focused bond fund known as Build Illinois.

The state’s municipalities, meanwhile, will get another $400 million for local road projects, a measure that helped neutralize their opposition to a part of the budget plan that eliminates one of their sources of revenue – the statewide 1 percent grocery tax.

But the grocery tax repeal won’t happen until 2026, and local governments will be given authority to enact their own grocery tax up to 1 percent without a referendum. Home rule jurisdictions will be able to increase their sales tax by up to 1 percent without a referendum as well.

Other spending items include:

– Funding for a 5 percent pay hike for lawmakers’ base salary to $93,712. State law sets lawmakers’ pay to increase annually with inflation, and lawmakers took no action to stop it from occurring in FY25.

– The annual $350 million increase in K-12 education funding, called for by a 2017 law that overhauled Illinois’ school funding formula.

– A 2 percent – or $30 million – increase for community colleges and public universities.

– A $10 million increase to Monetary Award Program grants for lower-income college students.

– Full funding for Pritzker’s “Smart Start” plan aimed at adding 5,000 preschool seats across the state and providing workforce grants.

– $14 million to launch the newly created Department of Early Childhood, which Pritzker has promised would streamline services currently provided by three different state agencies.

– $45 million for a teacher vacancy pilot program to help underserved districts with teacher retention.

– A $1 hourly increase for direct service professionals who serve individuals with intellectual and developmental disabilities in community-based settings.

– An increase totaling $70 million for Community Care Program workers serving older adults who can’t live independently.

– $5 million for a tax credit program for news outlets beginning in 2025 and claimable the following year.

– $10 million for the governor’s plan to erase $100 million in total medical debt for Illinoisans through a partnership with the nonprofit Undue Medical Debt. House Bill 5290 laid out that applicants must earn 400 percent of the federal poverty level or less.

– $900 million for renovation at state prisons, including a possible tear down and rebuild of Stateville and Logan Correctional Centers.

– $4 million to create a statewide maternal health plan and distribute grants to community-based reproductive health care providers.

– $155 million for safety net hospitals.

– A $90 million increase for Home Illinois, a program created last year to address homelessness, bringing total funding to $290 million.

Hannah Meisel and ABC7 Chicago’s Jessica D’Onofrio and Craig Wall contributed to this report.

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government. It is distributed to hundreds of print and broadcast outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation, along with major contributions from the Illinois Broadcasters Foundation and Southern Illinois Editorial Association.

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A few months ago[1] Bob Labes and I wrote a blog post about the $78 Billion Tax Bill that includes affordable housing help by reducing the tax-exempt financing requirement for a developer to receive the 4% low income housing tax credit (4% LIHTC) by 40% for a limited time only. This got us thinking about how scarce the state allocation of volume cap is in some states and what if a developer still cannot obtain an allocation of volume cap for its project. Is the developer out of luck? Are there any other options?

If the developer is only looking at the 4% LIHTC, the answer is probably yes. But don’t leave now – there’s more! There are alternatives, which can be better than the 4% LIHTC for a developer.

While the 4% LIHTC program has been extraordinarily successful, it offers too little for the “missing middle.” The 4% LIHTC program has benefited households making 60% or less of the median income for their metropolitan area (“AMI”) for decades now. However, 4% LIHTC financing does not help those who earn too much to qualify for subsidized low-income housing but cannot afford market rents or homeownership (“Mid-Income Earners”). So, the inability to obtain an allocation of volume cap for financing for a 4% LIHTC program housing development could benefit a developer. As, a developer could target housing for Mid-Income Earners (“Mid-Income Housing”).

Targeting Mid-Income Earners could result in higher rents being charged for such units. Where the 4% LIHTC financings may not be available, other forms of tax-exempt bond financing can support housing for Mid-Income Earners (“Mid-Income Housing”), by combining the benefits[2] of: tax-exempt interest rates, favorable underwriting terms, and property tax abatement or exemptions.

Tax-Exempt Interest Rates

The most compelling benefit of tax-exempt bond financing is that tax-exempt interest rates are typically lower than conventional borrowing rates. Because investors do not have to pay federal (and sometimes state) income tax on interest income derived from such bonds, investors require less interest to generate the same after-tax return. This lowers overall interest rate that the investors are willing to accept for such obligations and this interest rate is passed onto the issuer/borrower. 

These types of financings are generally true “project financings.” The bonds issued to finance these projects include amounts borrowed for coverage, debt service reserves, capitalized interest, upfront professional fees, and bond issuance costs. Most, if not all, of the transactions borrow the full amount needed to complete the property, plus another 15% on average. So, a lower tax-exempt interest rate is a major benefit and is particularly valuable in financings for Mid-Income Housing financings, because deal sizes are relatively large and the amount of long-term tax-exempt debt is high as a percentage of total project funding.

Favorable Underwriting Terms

Mid-Income Housing transactions are typically executed as public bond offerings and not in the form of private placements or bank loans. Retail and institutional bond investors derive more value from tax-exempt interest than commercial banks that typically buy bonds in private placements. As a result, there are more investors willing to give much more favorable underwriting terms. Most bonds issued for Mid-Income Housing are unrated and are sold and traded in the high-yield municipal bond market. This market and the mortgage lending market are predominantly mutually exclusive. The mortgage lending market typically imposes much more onerous underwriting standards, including a maximum loan-to-value (LTV) ratio (often 80–90%), a minimum debt service coverage ratio (often 1.15-to-1 or 1.20-to-1), scheduled amortization with limited or no “balloon payments” or refinancing risk, completion and repayment guaranties from the developer/sponsor and loan-to-cost limits for construction debt.

By contrast, in “risk on” environments, when bond investors are seeking yield and willing to take risk, it is not uncommon to see non-recourse project financings in the high-yield bond market featuring:

• 100% debt financing;
• Lower projected debt service coverage (as low as 1.10-to-1);
• Long-term (30+ years[3]) fixed rate, callable debt;
• Sequential pay or “turbo” amortization as opposed to fixed/scheduled principal payments;
• “Balloon” payments or planned refinancings;[4]
• Relatively light guaranties; and
• Acceptance of construction risk as part of long-term debt financing (i.e., no separate construction loan).

Public and private sector actors have executed Mid-Income Housing transactions in the high-yield bond market with terms that could not be achieved in the conventional multifamily mortgage or 4% LIHTC markets. But, all of this flexibility comes at a cost – accepting a higher risk and seeking yield usually means the investor wants more in return. Interest rates and risk tolerances can also move dramatically in a short time based on outside factors[5] — and investors who provide favorable terms one day can feel differently for the next financing. Those highly leveraged unrated workforce housing bonds that were popular when interest rates were near zero during the COVID-19 Pandemic are a thing of the past.[6] The types of projects have become a lot less feasible when other contractual or state law limitations are in place. For example, state law in California requires moderate income housing to include:

• 10% of the units rented to residents earning at or below 50% AMI,
• 10% of the units rented to residents earning at or below 80% AMI, and
• The remaining 80% of the units rented to residents earning between 90% and 120% of AMI. 

With the rise in interest rates outpacing the rise in AMI, Mid-Income Housing transactions aren’t cash-flowing like they used to. Underwriters have been forced to get more creative with structures, like capital appreciation bonds,[7] being used for these types of financings. But, even with the increase in interest rates, this benefit combined with lower tax-exempt financing rates and property tax abatements or exemptions can help a Mid-Income Housing project cash flow. 

Property Tax Abatements or Exemptions

Property tax is often a major expense for multifamily rental housing projects. Because taxes are paid prior to debt service, every dollar of property tax owed is a zero-sum game for net operating income available to pay debt service. So, a reduction or all out removal of the obligation to pay property tax increases NOI and thus project feasibility. Some jurisdictions provide property tax exemptions and abatements that can help finance Mid-Income Housing.

Obtaining a property tax abatement or exemption often involves engaging with the local taxing units where the Mid-Income Housing facility is located to obtain the property tax abatement or exemption. This can sometimes present challenges when a property is already subject to property taxes. Convincing a local government to forego income can feel challenging at best, event when these projects are aimed to help residents. 

While the issuance of tax-exempt bonds does not automatically result in a real property tax exemption, the forms of ownership required for tax-exempt financing of Mid-Income Housing (ownership of all bond-financed facilities by a 501(c)(3) organization or a governmental unit) frequently results in exemption of a bond-financed project from real property taxation. Governmental ownership typically results in a clearer and more complete exemption from property tax than programs based on 501(c)(3) ownership. However, other considerations, such as leases to private parties, which may have “possessory” interests may negate that exemption. So, this really valuable tax exemption can be the determining factor in the structuring of your tax-exempt financing or borrower entity for the development of a Mid-Income Housing Project with governmental bonds or 501(c)(3) bonds. More on those considerations and structures to come. 

[1] Time flies when you are having fun!

[2] It should be noted that some of these benefits are also available for Affordable Housing Projects that do not receive the 4% LIHTC as well.

[3] Subject to State law and federal tax law limitations

[4] Also subject to State law and federal tax law limitations

[5] Think of the Fed’s decision to keep raising interest rates since 2022.

[6] We are all longing for those interest rates now.

[7] Capital appreciation bonds (CABs) are bonds that compound interest until maturity instead of paying interest annually. CABs are sold at a discount, called the par amount, and the interest and principal are paid in a single lump sum at maturity.

Originally Appeared Here

The Internal Revenue Service is concerned that not enough taxpayers are taking advantage of its alternative dispute resolution process for resolving disputes.

Finding ways to boost use of the ADR process was one of several topics discussed at the IRS’s National Public Liaison May meeting in Washington, D.C. Among them were promoter investigations at the Office of Fraud & Enforcement, filing season processing, and stakeholder liaison.

Alternate dispute resolution

The ADR process was lauded for its ability to resolve disputes much more quickly than the standard appeals process. It is a fundamentally different path that shows promise to both taxpayers and the IRS. Moreover, studies have shown that the process ends with both parties being more compliant. The fact that it reaches a shared resolution changes the perspective on both sides, according to officials. Both parties need to be willing to compromise in order to reach an agreed outcome. 

However, ADR usage has been lower than expected and continues to decrease, according to officials. The IRS has convened a cross-functional team to study and provide changes going forward, according to Stephen Mankowski, tax chair at the National Conference of CPA Practitioners, who was at the meeting. 

The Internal Revenue Service building in Washington, D.C.

Stefani Reynolds/Bloomberg

“Some were procedural tweaks, while others were more sweeping recommendations that can improve the system,” he said. An example is when the taxpayer is denied without explanation. “Now, all denials are required to have details on the results. Also, tentative denial gets reviewed prior to submission to the taxpayer. Public education and internal training will need to occur to encourage taxpayer usage.”

The Office of Fraud Enforcement

A goal of the Office of Fraud Enforcement is to work with the practitioner community, as well as alternate channels, to make referrals. It has partnered with Small Business/Self-Employed Division research to get information at Tax Forums. Nearly all practitioners surveyed were familiar with the term “abusive transactions.” 

“It can be a fine line between fraud and tax planning, and clarification is needed on the website to illustrate this better, according to respondents in a poll,” Mankowski explained. “Practitioners felt that simple online submission was important, as well as the IRS releasing statistics. Both help to hold people accountable.”

The Earned Income Tax Credit was top on the list of problems, along with underreporting income and overreporting expenses, he added. Most are familiar with the “Dirty Dozen” tax scams. Overall, practitioners want more and better means for reporting. A common view was the desire to see a “perp walk” upon arrest. 

Tax season wrap-up

Filing season was a success, according to the IRS. There were no huge system issues; although there were some slow transmissions, they were quickly cleared up. Program completion dates for refunds are normal. More extensions were filed this season than last year, and returns are continuing to arrive. The IRS just began digitizing Form 709 from prior years, and will continue to digitize old returns and ultimately current-year returns. The service continues to struggle with hiring, with Kansas City being hit the hardest. 

The Direct File Pilot was available in 12 states this year. Its goal was to give the IRS the ability to provide simple tax preparation and filing for free. It became generally available to the public in those states in mid-March. 

Stakeholder Liaison

The goal of Stakeholder Liaison is to help practitioners navigate the IRS. It is planning on involvement in more events in 2024 than at any time in the past. It presents 50-60 webinars annually, with subject matter experts addressing the majority of topics. 

Originally Appeared Here

When Eric Cooper, a 50-year-old early retiree, needed to tap his retirement savings before the age of 59 and a half, he faced the possibility of steep penalties.

But he found a way around it using an obscure IRS rule known as Section 72(t).

Don’t miss

By leveraging this rule, Cooper successfully withdrew $20,000 annually from his IRA without incurring the 10% early-withdrawal penalty.

The withdrawal bucks conventional wisdom about taking money out of your retirement vehicles before age 59.5. Usually, early withdrawals trigger stifling penalties, and they can slow the momentum of your portfolio as it barrels toward retirement, fueled by market rises and compound interest.

So why and how did Eric do it?

A quiet loophole

A diligent saver who was ready for a change, Eric told Business Insider that he decided to retire early and he needed a reliable source of income.

Knowing about early-withdrawal penalties for IRAs, and after doing some research, he found Section 72(t), which allows for penalty-free early withdrawals – known as Substantially Equal Periodic Payments – provided they follow a specific set of rules.

He calculated his SEPPs based on his life expectancy and started withdrawing $20,000 annually. This strategy gave him the necessary funds to support his early retirement while avoiding hefty penalties.

Understanding Section 72(t)

SEPPs are calculated based on one of three methods:

Required minimum distribution (RMD) method. Withdrawals are calculated annually by dividing the account balance by the individual’s life expectancy.

Fixed amortization method. Withdrawals are also determined using the account balance and life expectancy, but involving a slightly different calculation.

Fixed annuitization method. Withdrawals are based on annuity factor tables provided by the IRS.

Withdrawals must continue for at least five years or until the individual reaches 59.5, whichever is longer. For example, if Eric starts his SEPPs at age 50, he must continue them until he turns 59.5. If he begins at age 57, he must continue until he turns 62.

Story continues

Here’s a sample calculation: Let’s assume you have $500,000 in an IRA and use the fixed amortization method with an interest rate of 2%. Using this method, your annual withdrawal amount might be calculated this way:

• Account balance: $500,000

• Life expectancy: 34.2 years (based on IRS tables)

• Annual withdrawal: $500,000 / 34.2 = $14,619.

You could choose to adjust your withdrawal amount by selecting a different method or adjusting parameters within the allowed ranges. You can play with different scenarios using this calculator.

Read more: Jeff Bezos and Oprah Winfrey invest in this asset to keep their wealth safe — you may want to do the same in 2024

Is Section 72(t) right for you?

Utilizing Section 72(t) can be a smart move for some early retirees, but it’s not without its risks and downsides. Here’s a look at why it may or may not be suitable depending on your financial situation:

Advantages: The primary benefit is avoiding the 10% early-withdrawal penalty, preserving more of your retirement savings.

Disadvantages: SEPP withdrawals must be maintained for the required duration. Stopping or altering the payments can result in penalties and interest on all previous withdrawals. Of course, withdrawing funds early can significantly reduce the potential growth of your retirement savings.

You should also consider keeping your accountant and financial adviser on speed dial: Determining the correct withdrawal amount requires precise calculations and often professional guidance to avoid mistakes.

There’s a reason why Section 72(t) is seldom used. Getting it right can be complex and requires a thorough understanding of the rules. But it offers a valuable tool for early retirees like Cooper, providing a way to access retirement funds without penalties.

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Originally Appeared Here

(Submitted)

Lifeline, Inc. has concluded its 2023 tax season with “its best results ever,” according to the agency’s administration.

Final statistics for the VITA Program for the season show that 345 residents had taxes prepared at a Lifeline VITA tax clinic — the most ever served in a single season.

Additionally, of those 345 residents, 77 received the Earned Income Tax Credit. Total returns generated at Lifeline’s VITA clinics totaled $300,795.

“We’re really excited about the number of people we served and at a time when we know so many families have struggled financially due to rising costs of food, gas, and housing,” said Lifeline Executive Director Carrie Dotson. “And we have to thank our partners at United Way of Lake County — they continued to provide funding for our VITA Program so that we could meet the increased demand this season.”

United Way of Lake County President and CEO Dione DeMitro said the nonprofit is grateful to partner with Lifeline.

“Far too many people in our community are living paycheck to paycheck, and this program makes sure our most vulnerable friends and neighbors are able to maximize their returns,” she said.

The Earned Income Tax Credit, originally approved by Congress in 1975, is a federal income tax credit for low- to moderate-income working families and individuals.

Eligibility factors include how much is earned and how many children a taxpayer has. Single adults and couples without children can also qualify for the credit, although families with children receive larger credits, according to program guidelines.

Lifeline uses volunteers trained and certified by the Internal Revenue Service who additionally assist elderly and disabled people.

Throughout the 2023 tax season, volunteers donated 546 hours to VITA, Dotson said.

Coordinator Heather Martucci agreed that the program was a huge success.

“We have been so fortunate to have had such an incredible tax season,” she said. “My volunteers and I truly enjoyed helping so many families and everyone always showed so much gratitude and appreciation.

“Seeing taxpayers walk out the door of our clinics feeling less overwhelmed makes the whole experience worthwhile,” Martucci added. “We were also very happy that all of our studies of tax laws and taking the time to take the certification exams did not go to waste.”

Dotson emphasized that partner sites, like the Perry Senior Center and the Wickliffe Family Resource Center, were instrumental in delivering a positive outcome.

“We truly appreciate everyone who devotes time and space — they really help us to reach every corner of Lake and Geauga counties,” she said. “We also appreciate the partnership of the IRS and the backing of all those involved in operating the tax clinics.

Lifeline has hosted VITA clinics since 2010 and has prepared tax filings for 2,760 residents.

In that span, volunteers have given 5,955 hours and $3,289,774 in refunds has been generated for residents.

“Besides being able to provide this assistance, this year was also significant because we surpassed $3 million in total returns,” Dotson said. “For a program that is completely volunteer-driven, that is an amazing amount of money to have brought back into the community.”

Lifeline’s tax clinics are additionally supported through the federal Community Services Block Grant.

Lifeline will host VITA clinics beginning again in January. Anyone interested in volunteering is encouraged to contact Heather Martucci at 440-354-2148 or heatherm@lclifeline.org.

Originally Appeared Here

What’s often billed as a friendly, no-appointment-needed, walk-in Saturday at the IRS turned into a stand in line, a frustratingly long line, a stretching down Michigan Avenue kind of a line, in downtown Detroit.

Hundreds of people stood outside for five hours or more and drew Detroit police presence, as well as a few officers wearing jackets marked as Homeland Security and IRS Criminal Investigations.

Dozens of people — some who brought their lawn chairs and fleece blankets, others who had their toddlers in tow — arrived at ungodly hours for in-person help at Internal Revenue Service offices in the McNamara Federeal Building at 477 Michigan Ave.

The second Detroiter in line — who asked not to be named — said he arrived at 10 p.m. Friday to grab his spot. The third man — who also did not disclose his name — said he arrived at midnight. They saved the spot for the first person in line who apparently was taking a break at around 8:15 a.m. when I arrived and began talking to people.

The IRS would start seeing people at 9 a.m. Saturday. And yes, many would end up being turned away.

As of 9 a.m., a young woman found herself at the end of the very long line, which then stopped at the end of the block at Third Street and Michigan Avenue. Later in the morning, according to the IRS, the line was expanding farther down Michigan Avenue.

Many say IRS told them they must visit Detroit office in person

All the people who would talk to me — and some would not — told me they were at the IRS building to verify their identities. Some tried to do so over the phone but were told that they needed to show up in person. Some filed their 2023 tax returns in February but couldn’t get their refunds until they verified their IDs. They were still waiting for refunds in late May. They wanted their money.

Nothing had changed about their tax situations, according to some, still working at the same jobs, still making the same kind of money. One man who also declined to give his name said he worked for the city of Detroit.

“I never had this problem, never, ever,” said one person in line who worked the same job for 22 years.

“We got to sit out here like animals in a line,” said Pia Smith, who said she arrived at “3 a.m., baby.”

She needs to get her identity verified to free up her tax refund and hoped to get the task done during the 9 a.m. to 4 p.m. hours of service Saturday. Smith couldn’t get help at another Saturday walk-in event earlier this year when she recalled freezing in line, waiting and being out of luck.

The IRS had four special Saturday, no-appointment-needed events this tax season, February, March, April and May. Typically, IRS taxpayer assistance centers are open from 8:30 a.m. to 4:30 p.m. Monday through Friday and will work with taxpayers by appointment only. To make an appointment, you’d call 844-545-5640.

More:Terrible tax tips promoted on social media trigger big refund headaches for 2023 returns

More:Tax pros warned that ‘new client’ could be a scammer, as crooks seek sensitive data

Much confusion about why tax refunds aren’t arriving

Lattrell Mapp — who arrived around 3:15 a.m. to verify her identity — was still waiting for her tax refund for her 2023 return, as well as her 2022 refund. Together, she says she’s owed about $19,000 for the two tax refunds. She filed her 2023 taxes in February. “I worked two jobs,” she said, both involve W-2s, including one from the post office. She’s had trouble paying her bills, including rent.

“All my stuff fell behind because the government is messing around with my money,” Mapp said.

Later Saturday afternoon after she met with an IRS employee in Detroit, she said she was told that she’d need to amend last year’s return to resolve some issues.

Many people are now stressed out over their taxes, even though the IRS had a fairly good season, as a result of ID theft and, and the IRS said, the fact that many taxpayers appear to be victims of some terrible tax advice.

To be sure, the IRS has been criticized in the past for taking too long to issue refunds to victims of identity theft. Nearly 500,000 people who had cases still pending with the IRS’s Identity Theft Victims Assistance unit at the end of 2023 found themselves waiting an average of 19 months for the IRS to resolve their problems, National Taxpayer Advocate Erin Collins stated in her 2023 Annual Report to Congress in January.

Collins then called the delays “unconscionable.”

To top it off this year, the IRS stated on May 14 that thousands of taxpayers filed inflated refund claims on 2023 returns and some taxpayers may be “scam victims” if they improperly claimed some obscure but now misused tax credits. “Given the questionable nature of many of these claims, the IRS has frozen the refunds for these taxpayers,” according to the IRS release.

Many times, returns that try to inflate refunds aren’t signed by the tax preparers, which is a huge red flag when it comes to potential fraud. The IRS said that many people in this situation will need to file an amended return to remove credits that they aren’t eligible for to avoid potential penalties.

Luis Garcia, a spokesperson for the IRS in Detroit, said about 99% of the people in line in Detroit Saturday were there to get their IDs verified.

“The IRS believes many of the people in line Saturday ultimately may turn out to be scam victims who have been misled by social media or ghost preparers to try claim big refunds — sometimes in the five figures — they aren’t eligible for,” Garcia said.

The IRS has not found an unusual or correlating rise in identity theft, he added.

Several taxpayers I talked with early Saturday morning said they’re not sure what’s going on, and they didn’t believe they wrongly claimed any credits.

“This is ridiculous,” said Charlene Smith, of Detroit, who stood in line Saturday to verify her identity. “Why would I lie?”

Smith, who grabbed her spot at 4 a.m. Saturday, said she’s never had to verify her identity in the past. She heard about the event from her tax preparer.

Ages range from 17 to 75 for those who need to verify ID

Lori Young, 63, drove roughly an hour on Saturday to the Detroit IRS office on Michigan Avenue from Clay Township near Algonac with her granddaughter Audrey Young, 17, who received an IRS 4883C letter related to identity theft.

Her grandmother tried to help her, by calling the IRS number. After all, the 17-year-old wasn’t all that sure what to say or do. But Audrey needed to talk to the IRS employee herself and was later told she needed to be seen in person.

Audrey Young had taxes withheld when she worked at Club Capri Restaurant in Algonac, as a cook who often made pizzas for $12 an hour. She’s a first-time tax filer who said she had taxes withheld from her checks. She believes she’s owed about $700 for her tax refund. She has a driver’s permit, not a full driver’s license. She couldn’t verify her ID on the IRS site.

Audrey and her grandmother Lori couldn’t snag an appointment in Detroit. At one point, Lori Young said, the IRS offered to look for possible appointment times in Flint, Grand Rapids, Cleveland, or Toledo. “I stopped it at that,” the grandmother said, “and said, ‘We’re not going to Ohio.’ “

The walk-in Saturdays were mentioned. The family drove to the one in Detroit in April, but the lines were way too long then and they drove home. They arrived at 8 a.m. Saturday but were still very far down the block minutes before 9 a.m.

As a backup, Audrey Young kept an appointment July 15 in the Flint office, an appointment that would be canceled if they could verify her ID Saturday.

On Sunday, though, Lori Young shared some good news with me. After nearly six hours outside in line, Lori and her granddaughter Audrey got into the IRS building at 1:45 p.m. Saturday. They went through security, filled out some paperwork, and were assigned a number, No. 480.

Then, they waited another hour and 15 minutes to be escorted to the fifth floor.

At about 3:30 p.m., she said, they met with an IRS employee. Audrey’s identity was verified, Lori Young told me. They expect that Audrey could receive a refund in about three weeks to nine weeks.

Many people recall seeing long lines for concert tickets, newly released sneakers, the latest Apple iPhones. But seeing crowds line up to see the IRS?

“We were up at the front of the building at 1:30 p.m. and it looked like the line was still way back, like where we were when you spoke with us,” Lori Young told me by email Sunday morning.

“When we did get in, they were taking in 10 people at a time,” she said. Best she could tell, the IRS took in more than 500 people in Detroit that day, given her spot in line and what she saw.

“We’re so happy that we got in,” she added. “If we arrived five minutes later, we would have missed the cut off. We were absolutely exhausted after standing and waiting for so long.”

She recalled walking out of the McNamara building at 4:05 p.m. when nobody was waiting in line any more. Many apparently were sent home before then.

“I’m thinking,” Young continued, “they had a lot of upset people after waiting for seven-plus hours and not being able to be seen.”

Garcia, at the IRS, estimated that less than 1,000 people turned out for the Saturday event. At around 3 p.m., he said, the line was cut off, which left about 250 taxpayers who did not receive service.

More than 25 IRS employees worked the event Saturday, he said, not including the number of employees providing support, such as security.

Far more taxpayers received help Saturday than at a similar event a year ago, he said. On Saturday, Garcia said 500 taxpayers received service from the IRS. A year ago at a Saturday event in May, he said, 280 taxpayers received service.

“Our Saturday events are normally scheduled in February, March, April and May of each year,” he said. “We currently have no other dates scheduled.”

Homer Cheese, 75, and his wife Venisher Cheese, 68, had heard about long lines at the IRS office in Detroit at another Saturday event April 13, so they arrived at about 5:30 a.m. But the couple still had a hard time believing the extent of the crowd, which Cheese noted was mainly African American, on Saturday.

“This is my first time ever being out here,” Venisher Cheese said. “I saw it on the news, but I never thought we’d be a part of it.”

The Detroit couple said they never had an ID problem. They had the same tax preparer for years, but she passed away. And they worked with a new preparer to file a 2023 return. They weren’t sure why they needed to verify their identity now. The couple said they didn’t claim anything different this year.

They both work in the cafeteria for Southfield public schools.

Venisher Cheese had worked with the Detroit Board of Education for 37 years and retired. But she stopped working only for about a year. “My girlfriend said I was going to die if I don’t get up and go to work, do something,” Venisher said. That’s how she ended up working for Southfield schools.

Homer Cheese said he talked to an IRS agent on the phone, but he was told he had to come downtown to show his driver’s license. “He said they got a lot of dead folks filing.”

“People stole a lot of money off them, I guess,” said Homer Cheese, as he stood holding his cane.

“I got a bad leg, so I told the people” on the phone, he said. “They said, ‘Well, we still have to see you.’ “

He had been standing in line about three hours when I talked with him and he showed me how his leg was swelling because of bad circulation.

The couple has not received their refund yet. “All we got is letters from the IRS,” he said.

By 12:15 p.m. Saturday, the couple was driving home after meeting with IRS employee around 11:45 a.m.

After putting in roughly six hours on Saturday, their issue still wasn’t resolved. Homer Cheese said the IRS gave them an appointment for 8:30 a.m. Friday and they’ll need to bring more paperwork.

Even so, he’s hopeful they’re one step closer to seeing the situation resolved and getting their federal income tax refund.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.

Originally Appeared Here

Washington, D.C. – Senate Finance Committee Chair Ron Wyden, D-Ore., and Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights Chair Sheldon Whitehouse, D-R.I, sent a letter on Wednesday to an attorney representing Supreme Court Justice Clarence Thomas demanding that Thomas clarify whether he repaid any of the principal on the loan he received to purchase a luxury motorcoach. The letter also sought clarification of whether Thomas reported the forgiven debt on his financial disclosure report and as income on his tax return, which is required by law. 

Previous investigation of this matter by the Finance Committee included a review of loan documents and correspondence between Thomas and the lender, Tony Welters. The Committee found evidence indicating that Thomas only made interest payments and the loan was forgiven before he paid any principal. After Senators Wyden and Whitehouse raised the prospect that Thomas may have failed to report the forgiven debt in violation of tax laws and ethics requirements, Thomas’s attorney responded with a brief letter stating that, “the terms of the agreement were satisfied.” He provided no new evidence of payments or disclosures or any explanation of what it meant for the agreement to be “satisfied.” 

“On December 19, 2023, we invited Justice Thomas to clarify discrepancies between his public statements regarding the treatment of the loan, and the evidence obtained by the Committee. That letter offered Justice Thomas an opportunity to state clearly, in plain terms, how much in principal and interest on the loan he repaid to Welters. We also offered Justice Thomas an opportunity to clearly state how much of the loan was forgiven or discharged by Welters. Unfortunately, the response you provided on Justice Thomas’s behalf was a non-answer,” the Senators wrote. “Your client’s refusal to clarify how the loan was resolved raises serious concerns regarding violations of federal tax laws … At the moment, Justice Thomas has done absolutely nothing to address the perception that he may have failed to report hundreds of thousands of dollars in forgiven debt on his federal income tax returns and pay the income taxes owed.”

The full text of the new letter from Senators Wyden and Whitehouse is available here. The questions in the letter are as follows: 

1. What was the total amount in principal and interest on the loan repaid by Justice Thomas to Tony Welters? When was the last payment made?
2. Were any payments of principal or interest made by other individuals? If so, please clarify how much was repaid by Justice Thomas and how much was repaid by any third parties (and who those third parties were).
3. Was any portion of the principal on the loan canceled, forgiven or discharged by Tony Welters? If so, how much? Please also state how much of this canceled, forgiven or discharged debt was reported as taxable income by Justice Thomas on his federal tax returns, and the related income taxes paid by Justice Thomas for that tax year.
4. If a tax return was later amended to include this canceled, forgiven or discharged debt, please provide the date on which the amended return was filed, the amount of the tax payment, and whether that tax payment was made by Justice Thomas out of his own funds or by any third parties (and who those third parties were).
5. If any portion of the principal on the loan was canceled, forgiven or discharged by Tony Welters, why did Justice Thomas fail to disclose the canceled, forgiven or discharged debt on his financial disclosure report(s)?

A web version of this release is here.

Originally Appeared Here