The process of taking property, by either a government or a private company, like a power utility, that has the right to take it, is referred to in tax parlance as an involuntary conversion. In a typical example, a landowner accepts money, either through the process of condemnation, or under threat of condemnation, for property or property rights.
An owner of real estate which is taken by involuntary conversion has the option of keeping the money and recognizing a long-term capital gain, as though the property had simply been sold, or he can use the money to purchase replacement property. If he elects not to replace the property, then the gain is calculated as being the difference between his cost basis in the property, and the condemnation proceeds. If he elects to spend all of the proceeds on replacement property, he generally has until December 31 of the second year after the year the proceeds were received. If the property was real estate used in a trade or business, he has until December 31 of the third year after the year the proceeds were received. If the entire proceeds are not used on replacement property, then the unused funds are taxed as a long-term capital gain in the year they were received.
In the year the money is received, if the owner is going to use the replacement option to avoid recognizing and paying tax on the money, he must provide information in his income tax return that describes the condemnation transaction, the plans for using the proceeds on replacement property, and make a positive election to postpone recognizing the gain. In the year the replacement property is obtained, a statement describing the replacement property, and referring back to the earlier year of the involuntary conversion should be attached to the tax return for that year.
Some types of payments are nontaxable. Relocation assistance is generally not taxable, and severance damages, which represent compensation for decrease in value of property which was not taken, can be treated as a reduction in the cost basis of the retained property, and may be nontaxable. In addition, condemnation proceeds for a principal residence are generally not taxable, unless the gain exceeds the allocable amount of the principal residence exclusion. This is usually $500,000 on a joint tax return, and $250,000 otherwise.
Additional situations and concepts relating to condemnation awards can be found in IRS Publication 544.

Our office has recently been inundated with phone calls from taxpayers in our area who have received calls from someone claiming to be from the IRS. These callers are using fake names and bogus IRS badge numbers to sound more convincing. They frequently know a lot about their target, like the last 4 digits of their social security number, and usually alter the caller ID to make it look like the IRS is calling.

Potential victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, the scammers sometimes become hostile and insulting, even threatening arrest in an attempt to scare the potential victim.

This scam has been around for years. However, with the recent increased occurrence in our area, we wanted to remind you of a few things. Please be aware that the IRS will never call to demand immediate payment, nor will the agency call about taxes owed, without first mailing you a series of notices. The IRS also never asks for credit card or debit card information over the phone.

If this happens to you, please call the Treasury Inspector General for Tax Administration at 1-800-366-4484. You can also report the incident to your local police department, if you prefer. For more information, you can also visit:

Wedding season is here and tax planning should be on your list of "to-do's" when saying "I do"! Keep these in mind to help fend off any tax-marriage related issues:

1. Change of name- If you take your spouse's name, be sure to report it to the Social Security Administration by completing form SS-5. Your tax return must match your SS records.

2. Change tax withholding- When you get married, you should consider a change of income tax withholding. To do that, give your employer a new Form W-4 and NC-4 (or other applicable State forms).

3. Changes in circumstances- If you receive advance payments of premium tax credit you should report a "change in circumstance", such as your marriage, to the Health Insurance Marketplace.

4. Change of address- Let the IRS know you moved. To do that, file Form 8822, Change of Address, with the IRS. You should also notify the U.S. Postal Service via your local post office or online.

5. Change in filing status- If you are married as of December 31, that is your marital status for the entire year for tax purposes. You and your spouse can choose to file your federal tax return jointly or separately each year.

Planning ahead is the best way to avoid any unnecessary issues, just like planning your wedding. After all, no one likes unwanted surprises on your wedding day OR on April 15th!

The IRS announced taxpayers can ask for a 6-month filing extension regardless of income, extending the deadline to Oct. 15.  Figures released today show that as of April 3, the IRS had already received just over 99 million returns and issued more than 77 million refunds averaging over $2,800.   This is an extension of time to file; not an extension of time to pay. However, taxpayers who are having trouble paying what they owe may qualify for payment plans and other relief.   Either way, taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by the April 15 deadline.

According to Mark Hanson with the IRS Media Relations, the fastest way to get the extra time is through the Free File link on to electronically request an automatic tax-filing extension on Form 4868.  To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.    By properly filing this form, a taxpayer will avoid the late-filing penalty, normally 5 percent per month based on the unpaid balance that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.    The interest rate is currently 3 percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.