The Internal Revenue Service (IRS) reports that many taxpayers make simple errors on their returns. While those who file electronic returns tend to have fewer errors, there are still many taxpayers who improperly report their taxable income or incorrectly claim credits and deductions. The use of a tax preparer, such as a CPA or an enrolled agent will help, but every taxpayer should understand how to avoid these common errors.

1. Filing Too Early — While most taxpayers understand they should not file after the April 15, 2025, deadline (unless they have requested an extension until October 15, 2025), it is also important to avoid filing too early. Taxpayers should ensure that the IRS has opened the filing period for the tax year in which they are filing for. Filing too early can be problematic, as some taxpayers may not have received all their tax forms, such as Forms W-2, Forms 1099 or other documents required for proper filing.
2. Wrong Social Security Number — The IRS software will check your Social Security Number (SSN). It should be the same as the number that appears on your Social Security card.
3. Name Spelled Wrong — Taxpayers must list their name on the tax return. Your name should match the information on your Social Security card or other valid government identification card.
4. Error in Income — Taxpayers who manually enter their wages, dividends, bank interest or other income frequently make errors. All entries made should be carefully checked. The entries are necessary to correctly calculate credits or deductions.
5. Incorrect Filing Status — The Interactive Tax Assistant (ITA) on IRS.gov may be helpful if you are not certain about your filing status. Income tax standard deductions and some exemptions will vary depending upon whether you are filing as a single person, a married couple or head of household.
6. Math Mistakes — The most common mistake taxpayers make is an error in addition or subtraction. Taxpayers using online software and filing electronically will usually avoid these miscalculations.
7. Wrong Credit or Deduction — The Earned Income Tax Credit (EITC), Child and Dependent Care Credit (CDCC) and Child Tax Credit (CTC) are complicated. The Interactive Tax Assistant may help determine eligibility for a specific credit or deduction.
8. Incorrect Bank Account Number — Most taxpayers who file electronically have their refund sent to their bank account. However, taxpayers must correctly type the routing and account numbers to ensure the funds are sent to the proper account.
9. Unsigned Tax Return — Taxpayers who file a paper return are required to sign the return. A joint return must be signed by both spouses. A common mistake occurs when one spouse forgets to sign the return.

Editor’s Note: Many of these errors are avoidable with the use of online software and electronic filing. If you use online software, it will check your return and avoid most of the common filing errors.

Trust Payment Included in Taxable Estate

In Estate of Pearl B. Kalikow et al. v. Commissioner; No. 23-7957 (2^nd Cir. 2025), the Court of Appeals for the Second Circuit issued a Summary Order that indicated a qualified terminable interest property (QTIP) trust payment would not reduce the stipulated estate value.

Sidney Kalikow was a New York real estate developer. After he passed away, ten apartment buildings were transferred from his estate into a QTIP trust for his spouse, Pearl. When Pearl passed away, the QTIP trust terminated, and the property was distributed to trusts for their children Edward Kalikow and Laurie Platt. The ten properties were transferred by the trust into the Kalikow Family Partnership with the trust owning a 98.5% interest.

Under Section 2044(a)-(b)(1)(a), the QTIP trust was taxed as part of Pearl's estate. The trust was subject to an agreement that it would pay any estate tax on trust assets. Pearl’s estate bequeathed the residue of her estate to the Sunshine Foundation and qualified for a Section 2055 charitable deduction.

A dispute arose with the estate claiming that the QTIP trust did not distribute the full amount of income to Pearl. After litigation, the QTIP trust and estate agreed that a settlement payment of approximately $6.6 million would be made from the trust to the estate to resolve the claim.

The estate and the IRS disputed the value of the Kalikow limited partnership interest. The IRS claimed the value was $105.7 million, while the estate maintained the value was $42.5 million. The estate and IRS compromised with a stipulated value of $54.5 million.

Subsequently, the estate claimed that the QTIP trust assets were reduced by the $6.6 million settlement payment to the estate. Therefore, this should be a deduction for the purpose of calculating the estate tax deficiency. Alternatively, the estate claimed that the $6.6 million payment should be deductible as an administration expense of the estate under Section 2053(b).

The Second Circuit noted the taxable estate is the gross estate minus deductions. While the estate claimed that the $6.6 million was a reduction in value, this was a "putative claim at the time of Pearl's death" and thus did not affect the value.

The QTIP trust is a separate legal entity. An obligation of the trust does not affect the value of the underlying assets of the gross estate. In addition, the parties knew there was a claim against the trust and stipulated with the IRS that the value was approximately $54.5 million. Therefore, the Second Circuit stated, "There is no basis upon which to diminish the value of the assets included in the gross estate by the amount of the undistributed income claim."

In addition, the undistributed income claim did not qualify under Section 2053(b) as an expense. The payment was considered "property to be included in the gross estate" and therefore not an expense. Finally, the estate is bound by the terms of the settlement in which the estate and the IRS agreed that the valuation would be $54.5 million.

Therefore, the undistributed income does not reduce the value of the estate. It is possible the QTIP trust may be entitled to deduct the $6.6 million on its income tax return, but the court did not rule on that issue. Finally, the court noted there is no double taxation. The estate will receive a charitable deduction for the transfer of $6.6 million to the Sunshine Foundation.

Corporate Transparency Act (CTA) Enforcement Suspended

On March 2, 2025, the Treasury Department stated, "With respect to the Corporate Transparency Act, not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect."

The Treasury decided to refrain from enforcing the Corporate Transparency Act (CTA) and its beneficial ownership information provisions. Treasury Secretary Scott Bessent noted, "Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy."

The latest plan under the CTA was an announcement by the Financial Crimes Enforcement Network (FinCEN) to require reporting by March 21, 2025. However, the announcement by the Treasury indicates that this will not be enforced.

There have been numerous court cases and several preliminary injunctions that delayed the CTA beneficial ownership reporting. The initial purpose of the CTA was to require corporations, limited liability companies and similar entities to disclose information about beneficial owners. The CTA included multiple exceptions but was likely applicable to approximately 32 million business entities.

After several court injunctions and decisions by FinCEN to start and stop the reporting requirements, the House of Representatives passed a bill on February 10, 2025, that would extend the reporting deadline from January 1, 2025 until January 1, 2026. The new Treasury announcement will delay the reporting date indefinitely.

Editor's Note: It is likely that this is the end of the CTA requirement to report beneficial ownership information. If there is to be reporting in the future, it seems probable that Congress will start with a new plan and new bill.

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.”