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Archive for June, 2011

Prepare for Hurricanes, Disasters by Safeguarding Tax Records

June 30th, 2011

The 2011 hurricane season starts today, and the Internal Revenue Service
encourages individuals and businesses to safeguard themselves against natural
disasters 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, 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.

IRS Increases Mileage Rate to 55.5 Cents per Mile

June 28th, 2011

The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rate Changes

Purpose

Rates 1/1 through 6/30/11

Rates 7/1 through 12/31/11

Business

51

55.5

Medical/Moving

19

23.5

Charitable

14

14

IRS Identifies Organizations that Have Lost Tax-Exempt Status; Announces Special Steps to Help Revoked Organizations

June 21st, 2011

The Internal Revenue Service today announced that approximately 275,000
organizations under the law have automatically lost their tax-exempt status
because they did not file legally required annual reports for three consecutive
years. The IRS believes the vast majority of these organizations are defunct,
but it also announced special steps to help any existing organizations to apply
for reinstatement of their tax-exempt status.

Congress passed the Pension Protection Act (PPA) in 2006, requiring most
tax-exempt organizations to file an annual information return or notice with
the IRS. For small organizations, the law imposed a filing requirement for the
first time in 2007.  In addition, the law automatically revokes the
tax-exempt status of any organization that does not file required returns or
notices for three consecutive years.

For several years, the IRS has made an extensive effort to inform
organizations of the changes in the law through multiple outreach and education
avenues, including mailing more than 1 million notices to organizations that
had not filed. In addition, last year the IRS published a list of at-risk
groups and gave smaller organizations an additional five months to file
required notices and come into compliance. About 50,000 organizations filed
during this extension period. Overall, the IRS believes the vast majority of small
tax-exempt organizations are now in compliance with the 2006 law.

“During the past several years, the IRS has gone the extra mile to help make
tax-exempt groups aware of their legal filing requirement and allow them
additional time to file,” IRS Commissioner Doug Shulman said. “Still, we
realize there may be some legitimate organizations, especially very small ones,
that were unaware of their new filing requirement. We are taking additional
steps for these groups to maintain their tax-exempt status without jeopardizing
their operations or harming their donors.”

As part of this, the IRS issued guidance today on how organizations can
apply for reinstatement of their tax-exempt status, including retroactive
reinstatement. In addition, the IRS announced transition relief for certain
small tax-exempt organizations – those with annual gross receipts of $50,000 or
less for 2010 – that were made subject to the new “postcard” filing
under the PPA. The relief allows eligible small organizations to regain their
tax-exempt status retroactive to the date of revocation and pay a reduced
application fee of $100 rather than the typical $400 or $850 fee. Full details
are available in Notice
2011-43
, Notice
2011-44
and Revenue
Procedure 2011-36
, issued today.

If an organization appears on the list of organizations whose tax-exempt status
has been automatically revoked it is because IRS records indicate the
organization had a filing requirement and did not file the required returns or
notices for 2007, 2008 and 2009.

The list of organizations whose tax-exempt status has been revoked for
failing to meet their filing requirement, which will be available on the IRS
website at www.IRS.gov, includes each
organization’s name, Employer Identification Number (EIN) and last known
address. It is searchable by state. It also includes the effective date of the
automatic revocation and the date it was posted to the list. The IRS will
update the list monthly to include additional organizations that lose their
tax-exempt status.

The vast majority of tax-exempt groups file their required returns and are
unaffected by the revocation listing. In addition, the IRS believes the vast
majority of the newly revoked groups are no longer in existence and need to be
removed from the tax-exempt listing as the 2006 law requires.

This listing should have little, if any, impact on donors who previously
made deductible contributions to auto-revoked organizations because donations
made prior to the publication of an organization’s name on the list remain
tax-deductible. Going forward, however, organizations that are on the
auto-revocation list that do not receive reinstatement are no longer eligible
to receive tax-deductible contributions, and any income they receive may be
taxable.

Publication on the list of organizations whose tax-exempt status has been
revoked serves as notice to donors and others that they may no longer rely on a
prior listing in IRS Publication 78, Cumulative List of Organizations, as an
indication of an organization’s tax-exempt status or its eligibility to receive
tax-deductible contributions. An updated version of Publication 78 with current
listings will be published on the IRS website later this week. Nor can donors
rely on an IRS determination letter issued to the organization prior to the
date of automatic revocation.

Existing organizations that seek to have their tax-exempt status reinstated
must complete an application and pay a user fee regardless of whether they were
originally required to file such an application. More information on the
reinstatement process, including retroactive reinstatement, can be found on
IRS.gov.

One Billion Served: IRS E-File Passes Major Milestone

June 13th, 2011

IRS e-file has reached a major milestone as it passed the one billion mark
for individual tax returns processed safely and securely since 1986.

The Internal Revenue Service’s electronic filing program started as a pilot
project in 1986 and became available nationally in 1990. Prior to the April 18
deadline, IRS e-file passed another high point as more than 100 million
individual tax returns were e-filed during the 2011 filing season.

“IRS e-file is a good deal for taxpayers,” said IRS Commissioner Doug
Shulman. “The one billion milestone means e-file has delivered real
services to taxpayers, including faster refunds and more accurate tax returns.
And because an e-file return costs us 20 times less to process than a paper
return, this program means a more efficient government that has saved America’s
taxpayers hundreds of millions of dollars.”

IRS e-file is an electronic transmission system that sends tax returns to
IRS processing centers. Taxpayers can e-file through their tax preparers,
through commercial software they use to prepare their own returns or through
Free File, the free tax software and e-file program offered through IRS.gov.

Congress originally set an 80 percent goal for the electronic filing of
federal tax and information returns back in 1998. E-file is now very close to
that mark. Currently, more than 79 percent of taxpayers have used e-file to
submit their tax returns so far this year.

In 2009, Congress passed another provision requiring tax preparers who file
10 or more tax returns to use e-file. IRS e-file has been steadily growing, but
the new law, which the IRS is phasing in, brought a surge of e-filed returns
for 2011. For this year, tax preparers who filed 100 or more returns were
required to e-file.

For 2012, tax preparers who file 11 or more returns will be required to
e-file. The requirement should put the IRS within reach of its goal of 80
percent e-file rate for individual tax returns.

FBAR Filing Deadline Extended for Certain Financial Professionals

June 1st, 2011

The Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) today announced that a small subset of individuals with only signature authority required to file the Report of Foreign Bank and Financial Accounts (FBARs) will receive a one-year extension beyond the upcoming filing date of June 30, 2011.

FinCen today issued Notice 2011-1 that extends the deadline until June 30, 2012, for the following individuals:

  • An employee or officer of a covered entity who has  signature or other authority over and no financial interest in a foreign
    financial account of another entity more than 50 percent owned, directly  or indirectly, by the entity (a “controlled person”).
  • An employee or officer of a controlled person of a  covered entity who has signature or other authority over and no financial  interest in a foreign financial account of the entity or another  controlled person of the entity.

All other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011, filing date. Unlike with
federal income tax returns, extensions of time to file are not available.

Today’s notice was issued to facilitate more accurate compliance of FBAR filings in the wake of recent finalization of regulations. The FBAR filing requirements, authorized under one of the original provisions of the Bank Secrecy Act, have been in place since 1972.

On Feb. 24, 2011, FinCEN published a final rule that amended the Bank Secrecy Act regarding FBARs.

The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries.

U.S. persons are required to file FBARs Form TD F 90-22.1 annually if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.