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Archive for June, 2009

IRS Electronic Advisory Committee Delivers Report to Congress

June 30th, 2009

The Electronic Tax Administration Advisory Committee (ETAAC) presented its 2009 Annual Report to Coirs-logongress. The ETAAC provides feedback on the development and implementation of the Internal Revenue Service’s electronic tax administration strategy.The report includes 10 recommendations to advance the use of electronic filing. For example, the report recommends the IRS require all tax preparers who file at least 200 returns a year to use e-file. The report also calls for continued modernization of IRS systems as well as collaboration between the IRS and industry regarding software standards.

“ETAAC plays a significant role in IRS efforts to improve the taxpayer’s experience via e-file and the Internet,” said David Williams, director of Electronic Tax Administration. “ETAAC feedback helps the IRS shift more returns from paper to e-file, which is a top priority.”

The 14-member panel provides an organized public forum for discussion of electronic tax administration issues and the overriding goal that paperless filing should be the preferred and most-convenient method of filing tax and information returns.

“The IRS is making great progress on its strategic planning efforts toward reaching not only the 80 percent e-file goal established by Congress but also toward providing the next generation of electronic services for taxpayers, tax preparers and other stakeholders,” said Chris Beach, ETAAC Chairman. “ETAAC looks forward to working with the IRS on helping to advance these important electronic tax administration opportunities.”

ETAAC submits an annual progress report to Congress each June. The IRS Electronic Tax Administration created the ETAAC in 1998 as required by the IRS Restructuring and Reform Act of 1998. The report is the result of research and analysis as well as meetings with senior IRS executives.

Public comments on the report will be solicited via the Federal Register in the fall.

What to do if You Receive an IRS Notice

June 29th, 2009

It’s a moment many taxpayers dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

• Agree? If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

• Disagree?  If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

Be sure to keep copies of any correspondence with your records.

Seven Facts about the New Sales Tax Deduction for Vehicle Purchases

June 26th, 2009

Taxpayers who buy a new car or several other types of motor vehicles this year may be entitledgiving-money to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.Here are seven things you should know about this new deduction:

  1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
  2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
  3. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
  4. This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
  5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
  6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
  7. The deduction may not be taken on 2008 tax returns.

Consumers who are considering buying a new car may find that this tax incentive means there may have never been a better time to buy.

Check Withholding to Avoid a Tax Surprise

June 25th, 2009

With 2009 nearly half over, the Internal Revenue Service reminds individual taxpayers there is no better time to check their 2009 federal income tax withholding levels to make sure they do not face any surprises when returns are due next spring.The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners.

Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675 and 79 percent of all returns received a refund.

Because retirees typically have withholding from their pension payments, pension plan administrators or pension payors should be aware of the optional adjustment procedure for pension withholding announced in Notice 1036-P, Additional Withholding for Pensions for 2009.

Social security beneficiaries, supplemental security income recipients, disabled veterans and railroad retirees that receive this year’s one-time $250 economic recovery payment should be aware that the Making Work Pay credit will be reduced by the $250 payment amount. They may also want to review their withholding.

The IRS withholding calculator on IRS.gov can help a taxpayer compute the proper tax withholding. The worksheets in Publication 919, How Do I Adjust My Withholding?, can also be used to do the calculation. If the result suggests an adjustment is necessary, the taxpayer should submit a new Form W-4, Withholding Allowance Certificate, to his or her employer or adjust the amount of quarterly tax paid.

In addition, the IRS reminds unemployed workers that the first $2,400 of unemployment benefits they receive during 2009 are tax-free for federal income tax purposes. People who expect to receive more than that should consider having tax withheld from their benefit payments in excess of $2,400. Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end.

Taxpayers should visit IRS.gov for more information about how to adjust federal income tax withholding. The Web site also has details on various tax incentives in the American Recovery and Reinvestment Act as well as downloadable forms and publications. Free tax forms and publications are also available by calling 1-800-TAX-FORM (1-800-829-3676).

Prepare for Hurricanes by Safeguarding Tax Records

June 23rd, 2009

With the 2009 hurricane season now underway, the Internal Revenue Service encourages indivihurricaneduals and businesses to safeguard themselves by taking a few simple steps.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records — including, for example, bank statements, tax returns, insurance policies home, etc. — is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

 

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Back copies of tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Likewise, transcripts can be ordered using Form 4506-T, Request for Transcript of Tax Return. Returns or transcripts can also be ordered by calling 1-800-829-1040.

There is no fee for a transcript or tax return copy for a taxpayer located in a federal disaster area qualifying for individual assistance. Taxpayers should put the assigned Disaster Designation in red ink at the top of the request form.

Top Ten Facts about Amended Returns

June 22nd, 2009

Taxpayers who need to make a change or adjustment on a return they already filed can do so by filing an amended return. Here are the top 10 things every taxpayer should know about amending your federal tax return.

1. Taxpayers needing to amend their return use Form 1040X, Amended U.S. Individual Income Tax Return.

2. Taxpayers can use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically.

3. Taxpayers should file an amended return if they discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.

4. Generally, you do not need to file an amended return for math errors as the IRS will be able to make the correction for you.

5. You also do not usually need to file an amended return because you forgot to include forms – such as W-2s or schedules – when you filed; the IRS normally requests those forms from you.

6.  Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

7. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS processing center for the area in which you live. The 1040X instructions list the addresses for the centers.

8. If the changes involve another schedule or form, attach it to the 1040X.

9. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.

10. If you owe additional tax for 2008, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

IRS Payment Options

June 19th, 2009

If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your rmoney-stackseturn by the deadline and pay as much as you can to avoid penalties and interest. 

There are also alternative payment options to consider:

  • Additional Time to Pay  Based on your circumstances, you may be granted a short additional time to pay your tax in full. The IRS is sometimes able to allow a brief additional amount of time to pay in order to facilitate tax debt repayment. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
  • Installment Agreement You can apply for an IRS installment agreement using our Web-based OPA application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing.
  • Pay by Credit Card or Debit Card You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card the service providers charge a flat fee of $3.95, do not add the convenience fee or flat fee to your tax payment.
    • Link2Gov Corporation:
      • To pay by debit or credit card: 888-PAY-1040 (888-729-1040), www.pay1040.com
    • Official  Payments Corporation:
      • To pay by credit card: 800-2PAY-TAX (800-272-9829), www.officialpayments.com
      • To pay by debit card: 800-866-4PAY-TAX (866-472-9829), www.officialpayment.com/debit

For more information about filing and paying your taxes, visit the IRS Web site at IRS.gov and choose “1040 Central” or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).

But remember, it is always recommended that you speak with a tax or other legal professional before taking any action with the IRS.

Stimulus Funds Expedite Refund Issuance

June 18th, 2009

The Governor of Missouri has dedicated $250 million in order to pay individual income tax refunds and property tax credit claims for the 2008 tax year.

Refunds will begin to be paid Tuesday, May 26, 2009.

All 2008 returns that are due a refund and the Department received before April 15 will be paid by June 5, unless the return required manual review because of potential errors.  Refunds will be processed in the order they were received.

Statement from IRS Commissioner Doug Shulman on Offshore Income

June 17th, 2009

irs-commissionerThe following excerpt is a statement made by IRS Commissioner Doug Shulman:

My goal has always been clear – to get those taxpayers hiding assets offshore back into the system. We recently provided guidance to our examination personnel who are addressing voluntary disclosure requests involving unreported offshore income. We believe the guidance represents a firm but fair resolution of these cases and will provide consistent treatment for taxpayers. The goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of our voluntary disclosure practice while they still can.In the guidance to our people, we draw a clear line between those individual taxpayers with offshore accounts who voluntarily come forward to get right with the government and those who continue to fail to meet their tax obligations. People who come in voluntarily will get a fair settlement. We set up a penalty framework that makes sense for them – they need to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20 percent of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. Just to be clear, this is 20 percent of the highest asset value of an account anytime in the past six years. This gives taxpayers – and tax practitioners – certainty and consistency in how their case will be handled.

We have instructed our agents to resolve these taxpayers’ cases in a uniform, consistent manner. Those who truly come in voluntarily will pay back taxes, interest and a significant penalty, but can avoid criminal prosecution.

At the same time, we have also provided guidance to our agents who have cases of unreported offshore income when the taxpayer did not come in through our voluntary disclosure practice. In these cases, we are instructing our agents to fully develop these cases, pursuing both civil and criminal avenues, and consider all available penalties including the maximum penalty for the willful failure to file the FBAR report and the fraud penalty.

We believe this is a firm, but fair resolution of these cases. It will make sure that those who hid money offshore pay a significant price, but also allow them to avoid criminal prosecution if they come in voluntarily. As we continue to step up our international enforcement efforts, this is a chance for people to come clean on their own. Our guidance to the field is for the next six months only, after which we will re-evaluate our options.

For taxpayers who continue to hide their head in the sand, the situation will only become more dire. They should come forward now under our voluntary disclosure practice and get right with the government.

Tax Deduction for New Car Buyers

June 16th, 2009

IRS announced on March 30, 2009 that taxpayers who buy a new passenger vehicle this year may
be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax
returns next year.

“For those thinking about buying a new car this year, this deduction may give them a little more drive
to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables
taxpayers to buy now and get cash back later on their tax returns.”

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the
purchase price of a qualified new car, light truck, motor home or motorcycle. The amount of the deduction
is phased out for taxpayers whose modified adjusted gross income is between $125,000 and
$135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after February 16, 2009, and before
January 1, 2010, to qualify for the deduction. The special deduction is available regardless of
whether a taxpayer itemizes deductions on their return. IRS reminded taxpayers the deduction may
not be taken on 2008 tax returns.