Adoption can create new families or expand existing ones. The expenses of adopting a child may also lower your federal tax. If you recently adopted or attempted to adopt a child, you may be eligible for a tax credit. You may also be eligible to exclude some of your income from tax. Here are ten things the IRS wants you to know about adoption tax benefits.

1. The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.

2. To be eligible, a child must generally be under 18 years old. There is an exception to this rule for children who are physically or mentally unable to care for themselves. 

3. For 2012, the tax credit is nonrefundable. This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.

4. If your credit exceeds your tax, you may be able to carryforward the unused credit. This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013. You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.   

5. Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion. Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return. E-file makes tax preparation easier and accurate. You can then print and mail your paper federal tax return to the IRS.

6. Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.

7. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you did not pay any qualified adoption expenses. See the instructions for Form 8839 for more information about this rule.

8. If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.

9. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you cannot claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

10. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on your income.

For more information, visit the IRS.gov website to see the Adoption Benefits FAQ page. Also, check out Form 8839 and its instructions. Both are available at IRS.gov or you can order the form by calling 800-TAX-FORM (800-829-3676).  

Additional IRS Resources:

• Adoption Benefits FAQs
• Form 8839, Qualified Adoption Expenses
• Adoption Tax Credit

WASHINGTON - The Internal Revenue Service today announced that its Office of Professional Responsibility (OPR) obtained the disbarment of Certified Public Accountant Anthony A. Tiongson for charging unconscionable fees, giving irresponsible advice to clients and making false statements to federal and state authorities, among other things.

Tiongson is prohibited from preparing tax returns or representing taxpayers before the Internal Revenue Service for a minimum of five years. Tiongson practiced in California.

“Practitioners who abuse the trust of their clients by charging unconscionable fees for taking frivolous positions on their tax returns can expect to hear from my office in the IRS," said Karen L. Hawkins, director of OPR

In a Final Agency Decision, the Administrative Law Judge (ALJ) disbarred Tiongson on March 1. The ALJ found that Tiongson’s advice to clients to use Form 2555 to treat California earned income as foreign source income on at least fifty-two tax returns, constituted disreputable conduct under Circular 230, and his failure to research the legitimacy of the filing position specifically violated the Circular’s due diligence standards.

The ALJ also found Circular 230 violations in Tiongson’s use of a contingent fee structure and in the false statement to IRS Criminal Investigation regarding his fee structure. He was also found to have made false claims to the California Board of Accountancy that he ceased advising use of Form 2555 after becoming aware of the first IRS examination of his clients’ returns.

The ALJ also found that Tiongson violated Circular 230 by engaging in a pattern of delaying IRS examination and collection actions by repeatedly raising numerous frivolous arguments, long-rejected by the IRS and by case law. Tiongson’s litigation threats against IRS employees, as part of client settlement proposals, were also determined to be violations.

"The mere possession of a professional license does not give a practitioner the right to make his or her own rules, or to threaten IRS personnel doing their jobs,” Hawkins said.

The ALJ found other violations of Circular 230 including: Tiongson did not respond to OPR requests for information and he submitted a Form 2848, Power of Attorney, naming an unlicensed individual as a second “authorized” representative in a collection matter thereby aiding an ineligible person to practice before the IRS.

Although the Decision was entered as a default judgment, Tiongson was represented by counsel during the proceedings. The text of the ALJ Decision can be found on IRS.gov.

WASHINGTON - The Internal Revenue Service is opening the nomination process for membership on the Electronic Tax Administration Advisory Committee (ETAAC). The deadline for submitting applications is April 1.

ETAAC was established as required by the Internal Revenue Service Restructuring and Reform Act of 1998. The purpose of the ETAAC is to provide continued input into the development and implementation of the agency’s strategy for electronic tax administration as well as to provide an organized public forum for the discussion of issues in electronic tax administration.

Nominations of qualified individuals may be made by letter and received from individuals or professional associations. A complete application package includes a nomination, ETAAC application, a short statement of interest and a resume. The application should describe and document the proposed member’s qualifications, past and current affiliations and/or dealings in electronic tax administration. A notice published in the Federal Register dated Feb. 14, 2013, contains more details about the ETAAC and the application process.

Members are approved by Treasury to serve three-year terms, beginning in the fall of 2013. Members must pass an IRS tax compliance check and Federal Bureau of Investigation (FBI) background investigation and may not be federally registered lobbyists.

Questions about the application process can be sent to etaac@irs.gov.

WASHINGTON - The Internal Revenue Service (IRS) today announced the selection of 26 new members to serve on the nationwide Taxpayer Advocacy Panel (TAP). The TAP is a federal advisory committee charged with providing taxpayer suggestions to improve IRS customer service.

The new TAP members will join 51 returning members to round out the panel of 77 volunteers for 2013. The new members were selected from almost 400 interested individuals from across the country who applied during an open recruitment period last spring or the pool of alternate members who applied in prior years.

"TAP members provide an important voice for taxpayers and provide valuable insights to help run the nation’s tax administration system," said IRS Acting Commissioner Steven T. Miller.
 
The TAP listens to taxpayers, identifies issues and makes suggestions for improving IRS service and customer satisfaction. Oversight and program support for the TAP are provided by the Taxpayer Advocate Service, an independent organization within the IRS that helps resolve taxpayer problems and makes recommendations to avoid future problems.

“It is critical that the IRS listen to the needs and preferences of America’s taxpayers,” said Nina E. Olson, National Taxpayer Advocate. “The vital work of these citizen volunteers helps the IRS provide all taxpayers with the top-quality service they deserve."

TAP members work with IRS executives on priority topics, primarily those involving the Wage & Investment and Small Business/Self-Employed operating divisions. Members also serve as a conduit for bringing grassroots concerns raised by the taxpaying public to the attention of the IRS.

TAP members are U.S. citizens who volunteer to serve a three-year appointment and are expected to devote 200 to 300 hours per year to panel activities. TAP members are demographically and geographically diverse, providing balanced representation from all 50 states, the District of Columbia and Puerto Rico.

Taxpayers can contact the TAP representative for their geographic area by calling 888-912-1227 (a toll-free call) or via the Internet at www.improveirs.org. Taxpayers can also send written correspondence to the TAP at the following address:

Taxpayer Advocacy Panel (TAP)

TA: TAP, Room 1509
1111 Constitution Avenue, NW
Washington, D.C.  20224

Individuals interested in volunteering to serve on the TAP for 2014 may submit an application via the website www.improveirs.org during the next open recruiting period, which will begin in late Februray 2013.

A list of the new TAP members by location is included below.

 

Direct deposit is the fast, easy and safe way to receive your tax refund. Whether you file electronically or on paper, direct deposit gives you access to your refund faster than a paper check.

Here are four reasons more than 80 million taxpayers chose direct deposit in 2012:

1. Security.  Every year the U.S. Postal Service returns thousands of paper checks to the IRS as undeliverable. Direct deposit eliminates the possibility of a lost, stolen or undeliverable refund check.

2. Convenience.  With direct deposit, the money goes directly into your bank account. You will not have to make a special trip to the bank to deposit the money yourself.

3. Ease.  It’s easy to choose direct deposit. When you are preparing your tax return, simply follow the instructions on the tax return or in the tax software. Make sure you enter the correct bank account and bank routing transit numbers.

4. Options.  You can deposit your refund into more than one account. With the split refund option, taxpayers can divide their refunds among as many as three checking or savings accounts and up to three different U.S. financial institutions. Use IRS Form 8888, Allocation of Refund (Including Savings Bond Purchases), to divide your refund. If you are designating part of your refund to pay your tax preparer, you should not use Form 8888. You should only deposit your refund directly into accounts that are in your own name, your spouse’s name or both if it’s a joint account.

Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Check with your bank for their direct deposit requirements.

Check the instructions in your tax form for more information about direct deposit and the split refund option. Helpful tips on both are also available in IRS Publication 17, Your Federal Income Tax. Publication 17 and IRS Form 8888 are available on IRS.gov or by calling the IRS at 1-800-TAX-FORM (1-800-829-3676).

Additional IRS Resources:

• Form 8888, Allocation of Refund (including Savings Bonds Purchases)
• Publication 17, Your Federal Income Tax
• What to Expect for Refunds in 2013

IRS YouTube Videos:

• When Will I Get My Refund? English | ASL

Tax issues can touch a wide range of people who need information in many different ways. For that reason, the IRS has added Tumblr to its list of social media platforms it is using to share IRS news and information. The new Tumblr platform at www.internalrevenueservice.tumblr.com provides another way for taxpayers to get current tax information when and where they want it.
 
Tumblr is a micro-blogging site where users can access and share text, photos, videos and other information from their browser, smartphone, tablet or desktop.

The new site shares information about important programs to help taxpayers, such as tax law changes, the Earned Income Tax Credit and Free File. The Tumblr site also makes it easier for IRS partners and others to share tax information they receive from the IRS.

In addition to Tumblr, check out these other IRS Social Media sites:

• YouTube - The IRS YouTube channels offer short, informative videos in English, American Sign Language and Spanish. IRS currently has more than 100 videos with more than 3.1 million views. For more information, watch the YouTube video “IRS Social Media.”
• Twitter - More than 61,000 people follow the IRS twitter feeds. The latest tax information is available at @IRSnews or @IRSenEspanol. @IRStaxpros covers news for tax professionals; @RecruitmentIRS provides updates for job seekers. The Taxpayer Advocate Service has information available @YourVoiceAtIRS.

Remember, to protect taxpayer privacy, the IRS only uses social media tools to share public information. IRS does not answer personal tax or account questions. You should never post confidential information, like a Social Security number, on social media sites.

For more information on IRS’s use of social media, go to IRS.gov/socialmedia.

Additional IRS Resources:

• IRS Adds Tumblr to Its List of Social Media Platforms

It’s important to use the correct filing status when filing your income tax return. It can impact the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return.

Are you single, married or the head of your household? There are five filing statuses on a federal tax return. The most common are "Single," "Married Filing Jointly" and "Head of Household." The Head of Household status may be the one most often claimed in error.

The IRS offers these seven facts to help you choose the best filing status for you.

1. Marital Status.  Your marital status on the last day of the year is your marital status for the entire year.

2. If You Have a Choice.  If more than one filing status fits you, choose the one that allows you to pay the lowest taxes.

3. Single Filing Status.  Single filing status generally applies if you are not married, divorced or legally separated according to state law.

4. Married Filing Jointly.  A married couple may file a return together using the Married Filing Jointly status. If your spouse died during 2012, you usually may still file a joint return for that year.

5. Married Filing Separately.  If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately.

6. Head of Household.  The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

7. Qualifying Widow(er) with Dependent Child.  This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions.

IRS e-file is the easiest way to file and will help you determine the correct filing status. If you file a paper return, the Interactive Tax Assistant at IRS.gov is a tool that will help you choose your filing status.

You can also find more helpful information in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. This publication is available at IRS.gov or by calling 1-800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• IRS Free File
• IRS e-file Options
• Interactive Tax Assistant
• Publication 501, Exemptions, Standard Deduction, and Filing Information

IRS YouTube Videos:

• File Your 1040EZ Using Free File - English | Spanish | ASL

IRS Podcasts:

• File Your 1040EZ Using Free File - English | Spanish

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

• Child support payments;
• Gifts, bequests and inheritances;
• Welfare benefits;
• Damage awards for physical injury or sickness;
• Cash rebates from a dealer or manufacturer for an item you buy; and
• Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

• Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
• Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering - the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.

For more information and examples, see Publication 525, Taxable and Nontaxable Income. The booklet is available at IRS.gov or by calling 800-TAX-FORM
(800-829-3676).

Additional IRS Resources:

• Publication 525, Taxable and Nontaxable Income
• Bartering Tax Center

We have observed instances in which the Schedule 8812 is attached to form 1040 and 1040A and is not filled out correctly. These instances are causing downstream processing delays. We have experienced the following two conditions: (1) The Schedule 8812 Part 1 checkboxes A, B, C, and D are checked when taxpayers list a dependent child with an SSN qualifying for child tax credit and (2) The Schedule 8812 Part 1 checkboxes A, B, C, and D not being checked when taxpayers have a child with an ITIN (Individual Taxpayer Identification Number) on Form 1040 and 1040A line 6c identified as qualifying for the child tax credit in column 4. 

The Schedule 8812 instructions direct the taxpayer to:

"Use Part I of Schedule 8812 to document that any child for whom you entered an ITIN on Form 1040, line 6c; Form 1040A, line 6c; or Form 1040NR, line 7c; and for whom you also checked the box in column 4 of that line, is a resident of the United States because the child meets the substantial presence test and is not otherwise treated as a nonresident alien."

We are working to implement Business Rules to reject these incorrectly completed returns with a date to be determined.

In the interim, we request that software packages include an alert to help preparers identify inconsistencies when completing the Schedule 8812 and that communication be provided to the practitioner community to avoid delays in processing returns.

Reminder: review your IRS e-file application to ensure that the information on the application is current.

The IRS can inactivate your Authorized IRS e-file Provider status if we receive undeliverable mail or are unable to contact you. Publication 3112 states that you must revise your e-file application within 30 days of any change.

Update your application with new information such as:

• Principals
• Responsible Officials
• Addresses
• Phone numbers
• URL information.

Please add a valid e-mail address to your e-file application so e-services can contact you when your password expires.

Providers may review and update their IRS e-file application information electronically via e-services.