IRS Tax News

  • 25 May 2012 2:24 PM | Anonymous

    WASHINGTON - The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

    "This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

    Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

    In certain circumstances, the changes announced today include:

    • Revising the calculation for the taxpayer’s future income.
    • Allowing taxpayers to repay their student loans.
    • Allowing taxpayers to pay state and local delinquent taxes.
    • Expanding the Allowable Living Expense allowance category and amount.

    In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

    The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

    When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

    Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

    Allowable Living Expenses

    The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

    The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

    Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

    This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

    In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.

  • 24 May 2012 9:43 AM | Anonymous

    The 2012 IRS Nationwide Tax Forums are three-day events presented by IRS experts and partner organizations that offer up-to-date information on federal and state tax issues. Tax professionals that take advantage of early registration will receive a significant discount on the registration fee. Keep in mind that the early registration period closes two weeks prior to each forum.

    Here are 10 things Enrolled Agents, Certified Public Accountants, Certified Financial Planners, Registered Tax Return Preparers and other tax professionals need to know about the 2012 IRS Nationwide Tax Forums.

    1. Forums are held June through August in Orlando, Atlanta, San Diego, Las Vegas, Chicago and New York.

    2. Those who sign up early can qualify for discounted registration fee. Pre-registration ends two weeks prior to the start of each forum.

    Location

    Forum

    Pre-Registration Deadline

    Orlando

    June 19-20

    June 6

    Atlanta

    July 10–12

    June 26

    San Diego

    July 17-19

    July 3

    Las Vegas

    July 31- August 2

    July 17

    Chicago

    August 21-23

    August 2

    New York

    August 28 - August 30

    August 14

    3. Forums offer an opportunity to receive up to 18 continuing education credits through a variety of training seminars and workshops.

    4. Forums will offer 43 separate seminars and workshops on valuable and relevant tax topics.

    5. Forums will also feature a two-day expo with representatives from the IRS as well as other tax, financial, and business communities offering their products, services, and expertise.

    6. Visit with IRS Oversight Board representatives and offer your comments on various IRS initiatives and programs.

    7. Tax professionals attending a forum can bring their toughest unresolved cases to meet with IRS personnel who may be able to help.

    8. Registering for a tax forum is easy! Register by internet, fax or mail.

    9. For more information or to register visit www.irstaxforum.com.

    10. Follow us on Twitter @IRStaxpros to get the latest IRS news and guidance for tax professionals. Or “like” us at www.Facebook.com/IRSTaxForums.
  • 22 May 2012 8:58 AM | Anonymous
    WASHINGTON - The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.
    "This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

    Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

    In certain circumstances, the changes announced today include:
    • Revising the calculation for the taxpayer’s future income.
    • Allowing taxpayers to repay their student loans.
    • Allowing taxpayers to pay state and local delinquent taxes.
    • Expanding the Allowable Living Expense allowance category and amount.

    In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

    The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

    When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B,  Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

    Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

    Allowable Living Expenses
    The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

    The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

    Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

    This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

    In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.

    Related Items:

  • 18 May 2012 4:44 PM | Anonymous
    Find out how you can deduct medical and dental expenses in this new YouTube video.


  • 18 May 2012 4:43 PM | Anonymous

    Effective May 21, the IRS will begin issuing only one employer identification number per responsible party each day, a change from the current limit of five per day. This limit applies to all requests for an EIN whether online or by phone, fax or mail. This policy was implemented to ensure fair and equitable access to all applicants with legitimate tax administration-related needs. It also ensures the EIN system continues to operate effectively. We apologize if this change affects your current business practice.

    For additional information about applying for an employer identification number, go to IRS.gov or click on the links below.

    Apply for an EIN Online

    Employer ID Numbers (EINs)

    Understanding your EIN

    You Tube Video Employer Identification Number

  • 02 Mar 2012 3:42 PM | Anonymous

    WASHINGTON - The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

    Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

    No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

    Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

    The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.
    The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

  • 02 Mar 2012 3:39 PM | Anonymous

    How will the credit make a difference for you?                 

    For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014. Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.

    Here’s what this means for you. If you pay $50,000 a year toward workers’ health care premiums – and if you qualify for a 15 percent credit, you save … $7,500. If you save $7,500 a year from tax year 2010 through 2013, that’s total savings of $30,000. If, in 2014, you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

    Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

    There is good news for small tax-exempt employers too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability.

    And finally, if you can benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

    Click here if you want more examples of how the credit applies in different circumstances.

    Can you claim the credit?

    Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.

    To be eligible, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs). Those employees must have average wages of less than $50,000 a year.

    Let us break it down for you even more.

    You are probably wondering: what IS a full-time equivalent employee. Basically, two half-time workers count as one full-timer. Here is an example, 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20.

    Now let’s talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10 – the number of FTEs – and the result is your average wage. The average wage would be $20,000.

    Also, the amount of the credit you receive works on a sliding scale. The smaller the business or charity, the bigger the credit. So if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.

    If you need assistance determining if your small business or tax exempt organization qualifies for the credit, try this step-by-step guide

    How do you claim the credit?

    You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.

    If you are a small business, include the amount as part of the general business credit on your income tax return.

    If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don't ordinarily do so.

    Don’t forget … if you are a small business employer you may be able to carry the credit back or forward. And if you are a tax-exempt employer, you may be eligible for a refundable credit

  • 14 Feb 2012 3:31 PM | Anonymous

    WASHINGTON -The IRS today issued guidance that now allows partnerships to provide Schedule K-1, Partner’s Share of Current Year Income, Deductions, Credits, and Other Items electronically to recipients. Certain entities, such as partnerships, are required annually to file K-1s with the IRS and provide a copy to their partners. The new rules can make it easier for partnerships to provide this necessary information to their partners, and will reduce the expense associated with printing and mailing K-1s to partners who elect to receive them electronically.

    The guidance issued today is Revenue Procedure 2012-17, which provides rules describing when partnerships may provide K-1s electronically to partners. The partnership must receive the partner’s consent before providing K-1s electronically, instead of on paper. These new rules are similar to the rules governing the electronic furnishing of the 1099 and W-2s.

    The revenue procedure addresses how the consent can be provided electronically undefined including secure e-mail and through the partnership’s internet page. The revenue procedure also addresses how partners are to be informed about changes in software, defines how the partnership is to provide instructions about accessing and printing electronic statements and the partnership’s responsibility if the K-1 is electronically undeliverable.

    Generally, K-1s must be provided to recipients by the due date of Form 1065, U.S. Return of Partnership Income. For partnerships operating on a calendar year, the due date is April 17, 2012. The IRS estimates that partnerships filed almost 26 million K-1s during 2011.

  • 03 Feb 2012 3:31 PM | Anonymous

    IRS.gov has information for reporting the amount from Forms 1099-K, Merchant Card and Third-Party Network Payments, on tax returns including Form 1040 Sch. C, Sch. E and Sch. F; and Forms 1065, 1120 and 1120-S.

    Report all gross receipts on the line indicated in the instructions and enter zero on the "Merchant card and third party payments" line.

    Related links:

  • 06 Jan 2012 5:35 PM | Anonymous

    WASHINGTON -The Internal Revenue Service today released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time.

    The new tax gap estimate represents the first full update of the report in five years, and it shows the nation’s compliance rate is essentially unchanged from the last review covering tax year 2001.

    The tax gap statistic is a helpful guide to the scale of tax compliance and to the persisting sources of low compliance, but it is not an adequate guide to year-to-year changes in IRS programs or to year-to-year returns on IRS service and enforcement initiatives.

    The following table summarizes the new estimates being released today, as compared to the 2001 estimates, along with the total tax liabilities in each year. 

     

    Tax Year 2001
    (billions)

    Tax Year 2006
    (billions)

    Total Tax Liabilities

    $2,112

    $2,660

    Gross Tax Gap

    $345
    (83.7% compliance)

    $450
    (83.1% compliance)

    Enforcement and Late Payments

    $55

    $65

    Net Tax Gap

    $290
    (86.3% compliance)

    $385
    (85.5% compliance)

    The voluntary compliance rate undefined the percentage of total tax revenues paid on a timely basis undefined for tax year 2006 is estimated to be 83.1 percent. The voluntary compliance rate for 2006 is statistically unchanged from the most recent prior estimate of 83.7 percent calculated for tax year 2001.

    On a relative basis, the tax gap is largely in line with the growth in total tax liabilities. In addition, some growth in the tax gap estimate is attributed to better data and improved estimation methods. For example, the IRS developed a new econometric model for estimating the tax gap attributable to small corporations which was then applied to newer operational data. Also, large corporation tax gap estimates for 2006 are based on improved statistical methods and updated data. Finally, the data related to individual income taxpayers continues to improve based on improved estimation techniques and newer data.

    The tax gap can be divided into three components: non-filing, underreporting and underpayment.

    As was the case in 2001, the underreporting of income remained the biggest contributing factor to the tax gap in 2006. Under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap in 2006, up from $285 billion in 2001. Tax non-filing accounted for $28 billion in 2006, up from $27 billion in 2001. Underpayment of tax increased to $46 billion, up from $33 billion in the previous study.

    Overall, compliance is highest where there is third-party information reporting and/or withholding. For example, most wages and salaries are reported by employers to the IRS on Forms W-2 and are subject to withholding. As a result, a net of only 1 percent of wage and salary income was misreported. But amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.

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