IRS to Examine Rental Losses More Closely
This article publish on (MARCH 9, 2011) BY MICHAEL COHN
The Internal Revenue Service has agreed with recomendations in a new1y released government report urging the agency to increase its examinations of individual tax returns that report losses from rental real estate activity.
The report,by the treasury inspection for the administration,was conducted because a Government Accountability Office report in August 2008 found that at least 53 percent of individual taxpayers with rental real estate activity for tax year 2001 misreported their rental real estate act vity, resulting in an estimated $12.4 billion of net misreported income.
The objectives of TIGTA's review were to evaluate the IRS's scrutiny of individual tax returns with rental real estate activity and to recommend changes to help identify, select and examine tax returns with rental realestate activity. TIGTA found that during fiscal years 2008 and 2009, the IRS's rental real estate (Compliance initiative program) examined only a small percentage of the 318,339 examinations conducted by revenue agents and tax compliance offiCers. TIGTA projected that if the IRS were to increase the percentage of rental real estate CIP tax returns it examined. it could increase potential tax assessments by $27.3 million over a five-year period.
Given the magnitude or underreportlng In our voluntary system or tax compliance,even small Improvements In the IRS's examination of tax returns with rental real estate activity could increase taxpayer compliance and generate substantial additional revenue to the federal government.helping reduce the tax gap." said TIGTA Inspector General J. Russell George In a statement.
IRS management agreed with all of TIGTA's recomendations.disagreeing only with the report's proposed monetary outcome measures. In its report,TIGTA recommended that IRS officials conduct an analysis to determine the population of tax returns with rental real estate activity that meets the criteria for inclusion in the C!Ps. The IRS should also revise the instructions for Form 8582 to require any taxpayers with prior-year unallowed passive activity losses to submit the form with their tax return. The report also recommended that the IRS ensure that the information taxpayers provide to report the net amount of income earned or losses incurred from being a realestate professionalis transcribed.
IRS management agreed with all three recommendations. The IRS, in connection with the development of compliance strategies, plans to consider whether additional CIP examinations are appropriate. In addition.the IRS plans to revise the 2011 instructions for Form 8582 and transcribe the information taxpayers provide to report the net amount of income earned.or losses incurred, from being a realestate professional.
"We will ensure the information taxpayers provide to report the net amount of income earned, or losses incurred,from being a realestate professional is transcribed,• wrote Christopher Wagner, the commissioner of the IRS's SmallBusiness/Self-Employed Division. "These changes will assist in selection of the most high-risk returns for audit."
However, the IRS disagreed with the proposed monetary outcome measures. "Since the dollars per hour figures were calculated based on a dual examinations that were ranked and seleded for examination based on their potential yield, the characteristics of these cases are not necessarily an accurate representation of the entire remaining population," Wagner wrote. "Therefore, because the results of the cases examined do not necessarily represent results from cases not selected, projecting differences in revenues across unexamined cases does not produce accurate revenue estimations.·
TIGTA said it computed the outcomes conservatively using historical data from the examination program.TIGTA officials maintained that the potential $27.3 million of increased revenue over a five-year period is reasonable considering the assumptions used to calculate the estimate.
Want to learn more about this tax regulation and how it affects you, click HERE to get informed at SteveMuellertax.com
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Monday, December 5, 2011
Tuesday, November 1, 2011
American Jobs Act of 2011
Check out this explanation of the American Jobs Act of 2011 taken from an article published September 13-Administration submits "American Jobs Act of 2011" to Congress.
In the late afternoon of September 12, the Administration submitted the "American Jobs Act of 2011" to Congress. It formally released the legislative text of the proposed jobs-and-stimulus measure, along with a section-by-section summary.
Businesses would be the major beneficiaries of the President's tax proposals, which would:
... Extend to 2012 the 100% bonus first-year depreciation deduction that generally applies only for assets placed in service before 2012 under current law.
... Cut the employer portion of the Social Security tax (Old Age, Survivors and Disability Insurance, or OASDI, tax) for employers in half from 6.2% to 3.1% on the first $5 million in wages paid by all employers, private or public (but not for government workers or household help).
... For the last quarter of 2011 and for calendar year 2012, create a payroll tax credit that fully offsets the employer Social Security tax that otherwise would apply to increases in wages from the corresponding period of the prior year. For example, if an employer paid wages subject to Social Security tax of $5 million in 2011 and $6 million in 2012, the credit to which the employer would be entitled would eliminate the employer's portion of Social Security taxes on the $1 million of increased wages. The credit would be available on up to $50 million of an employer's increased wages.
... Currently, employers that hire veterans who have been unemployed for at least 6 months and have a service-connected disability are eligible for a maximum tax credit of $4,800. The President's proposal would increase the amount of that credit to $9,600, and create two new hiring credits for veterans: (1) a
$2,400 credit for employers that hire veterans who have been unemployed for at least 4 weeks; and (2) a
$5,600 credit for veterans who have been unemployed for at least 6 months. These credits would be available to tax-exempt entities and public universities as well as for profit employers.
... Create a tax credit of up to $4,000 for hiring workers who have been looking for a job for over six months.
The President's sole tax relief proposal for individuals consists of cutting Social Security taxes in half in 2012 for workers, from 6.2% to 3.1%, thereby providing a tax cut of roughly $1,500 "to the typical family earning
$50,000 a year."
RIA observation: For 2011, workers pay 4.2% Social Security tax (down from 6.2% for
2010) on the first $106,800 of wages.
Want some help understanding this act, click HERE for Stephan Mueller, C.P.A.
In the late afternoon of September 12, the Administration submitted the "American Jobs Act of 2011" to Congress. It formally released the legislative text of the proposed jobs-and-stimulus measure, along with a section-by-section summary.
Businesses would be the major beneficiaries of the President's tax proposals, which would:
... Extend to 2012 the 100% bonus first-year depreciation deduction that generally applies only for assets placed in service before 2012 under current law.
... Cut the employer portion of the Social Security tax (Old Age, Survivors and Disability Insurance, or OASDI, tax) for employers in half from 6.2% to 3.1% on the first $5 million in wages paid by all employers, private or public (but not for government workers or household help).
... For the last quarter of 2011 and for calendar year 2012, create a payroll tax credit that fully offsets the employer Social Security tax that otherwise would apply to increases in wages from the corresponding period of the prior year. For example, if an employer paid wages subject to Social Security tax of $5 million in 2011 and $6 million in 2012, the credit to which the employer would be entitled would eliminate the employer's portion of Social Security taxes on the $1 million of increased wages. The credit would be available on up to $50 million of an employer's increased wages.
... Currently, employers that hire veterans who have been unemployed for at least 6 months and have a service-connected disability are eligible for a maximum tax credit of $4,800. The President's proposal would increase the amount of that credit to $9,600, and create two new hiring credits for veterans: (1) a
$2,400 credit for employers that hire veterans who have been unemployed for at least 4 weeks; and (2) a
$5,600 credit for veterans who have been unemployed for at least 6 months. These credits would be available to tax-exempt entities and public universities as well as for profit employers.
... Create a tax credit of up to $4,000 for hiring workers who have been looking for a job for over six months.
The President's sole tax relief proposal for individuals consists of cutting Social Security taxes in half in 2012 for workers, from 6.2% to 3.1%, thereby providing a tax cut of roughly $1,500 "to the typical family earning
$50,000 a year."
RIA observation: For 2011, workers pay 4.2% Social Security tax (down from 6.2% for
2010) on the first $106,800 of wages.
Want some help understanding this act, click HERE for Stephan Mueller, C.P.A.
Thursday, October 6, 2011
Spouse Working for Spouse?
Spouse Working for Spouse
It's not an uncommon situation where the spouse of a sole proprietor works in the other spouse's business. But is the spouse just a helper or also an employee? Apparently, even the Tax Court gets confused on this question. In a recent case (Shellito v. Comm'r.) the Court of Appeals for the Tenth Circuit "vacated" the Tax Court's decision and sent the case back to them for another review.
The Tax Court had wanted to disallow medical deductions paid as a reimbursement by the sole proprietor (employer husband) to his employee spouse. The spouse had not only sought reimbursement for her medical expenses but also for her spouse employer (because he was her spouse under the reimbursement plan). The Tax Court felt that the spouse employee was not an employee, and therefore the sole proprietorship shouldn't be able to deduct the reimbursements paid.
The appeals court first cited that under the IRS' own Revenue Ruling 71-588 "amounts reimbursed under an accident and health plan covering all bona fide employees, including the owner's wife, and their families are not includible in the employee's gross income and are deductible by the owner as business expense." The court then did their own analysis of whether the spouse was really an employee and "found that the couple had 'cross all the Ts and dotted all the Is' in maintaining very good records." Based on these records and other testimony at trial, the appeals court remanded the case back to the Tax Court "for reconsideration" of the employer-employee relationship.
The take aways from this trial are: good supporting documentation may determine a positive outcome for the taxpayer; "accident and health plans" under the Rev. Rul. 71-588 may provide an opportunity for tax savings; and not only the IRS, but the Tax Court, too, can misinterpret the tax law.
I invite your comments for further discussion.
CIRCULAR 230 NOTICE: Internal Revenue Service regulations require me to advise you that, unless otherwise specifically noted, any tax advice contained in this correspondence and related information, cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Have questions? Contact me at http://www.thisismytownusa.com/steve-mueller-tax.php for all your answers. Steve Mueller, The Smart Money Man
It's not an uncommon situation where the spouse of a sole proprietor works in the other spouse's business. But is the spouse just a helper or also an employee? Apparently, even the Tax Court gets confused on this question. In a recent case (Shellito v. Comm'r.) the Court of Appeals for the Tenth Circuit "vacated" the Tax Court's decision and sent the case back to them for another review.
The Tax Court had wanted to disallow medical deductions paid as a reimbursement by the sole proprietor (employer husband) to his employee spouse. The spouse had not only sought reimbursement for her medical expenses but also for her spouse employer (because he was her spouse under the reimbursement plan). The Tax Court felt that the spouse employee was not an employee, and therefore the sole proprietorship shouldn't be able to deduct the reimbursements paid.
The appeals court first cited that under the IRS' own Revenue Ruling 71-588 "amounts reimbursed under an accident and health plan covering all bona fide employees, including the owner's wife, and their families are not includible in the employee's gross income and are deductible by the owner as business expense." The court then did their own analysis of whether the spouse was really an employee and "found that the couple had 'cross all the Ts and dotted all the Is' in maintaining very good records." Based on these records and other testimony at trial, the appeals court remanded the case back to the Tax Court "for reconsideration" of the employer-employee relationship.
The take aways from this trial are: good supporting documentation may determine a positive outcome for the taxpayer; "accident and health plans" under the Rev. Rul. 71-588 may provide an opportunity for tax savings; and not only the IRS, but the Tax Court, too, can misinterpret the tax law.
I invite your comments for further discussion.
CIRCULAR 230 NOTICE: Internal Revenue Service regulations require me to advise you that, unless otherwise specifically noted, any tax advice contained in this correspondence and related information, cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Have questions? Contact me at http://www.thisismytownusa.com/steve-mueller-tax.php for all your answers. Steve Mueller, The Smart Money Man
Tuesday, September 27, 2011
Confidentiality and Security?
Confidentiality and Security
The IRS requires that your tax preparer keep and maintain taxpayer/client files in a secure and confidential manner. This confidentiality applies to not only paper files, but also electronic files kept on the preparer's computers. The IRS doesn't want the taxpayer to become a victim of identity theft. To protect my clients from identity theft I store their electronic files on my own computer hard-drives with password protection and encryption. The software that provides this encryption was tested by the FBI, who could not break into it! I keep my clients' paper files locked.
Does your tax preparer have you e-mail confidential information to her office? Did you know that normal e-mail travels all over the internet and can remain on internet servers long after being sent? Hackers of those servers could possibly get to view your information and retrieve your social security number and other valuable financial information about you. Do you or your tax preparer bother to encrypt this confidential information so that what remains on webservers will be impossible to decipher by potential hackers?
To help protect my clients, I use a secure network in which all traffic within the network is encrypted. Data stored on servers in the network are also encrypted. The webservers are "equipped with the latest firewalls and computer internet security updates." Many of the same servers in this network are also used "by banks and popular e-commerce services such as Amazon.com". Each user of the system has a unique login and password. The passwords themselves are "hashed" so that personnel who maintain the network can't recognize what they are.
To help save yourself from possible identity theft, you should ask your tax preparer what he or she does to keep your financial information confidential and secure. Don't send an e-mail containing confidential information before determining that it will remain confidential and secure.
The IRS requires that your tax preparer keep and maintain taxpayer/client files in a secure and confidential manner. This confidentiality applies to not only paper files, but also electronic files kept on the preparer's computers. The IRS doesn't want the taxpayer to become a victim of identity theft. To protect my clients from identity theft I store their electronic files on my own computer hard-drives with password protection and encryption. The software that provides this encryption was tested by the FBI, who could not break into it! I keep my clients' paper files locked.
Does your tax preparer have you e-mail confidential information to her office? Did you know that normal e-mail travels all over the internet and can remain on internet servers long after being sent? Hackers of those servers could possibly get to view your information and retrieve your social security number and other valuable financial information about you. Do you or your tax preparer bother to encrypt this confidential information so that what remains on webservers will be impossible to decipher by potential hackers?
To help protect my clients, I use a secure network in which all traffic within the network is encrypted. Data stored on servers in the network are also encrypted. The webservers are "equipped with the latest firewalls and computer internet security updates." Many of the same servers in this network are also used "by banks and popular e-commerce services such as Amazon.com". Each user of the system has a unique login and password. The passwords themselves are "hashed" so that personnel who maintain the network can't recognize what they are.
To help save yourself from possible identity theft, you should ask your tax preparer what he or she does to keep your financial information confidential and secure. Don't send an e-mail containing confidential information before determining that it will remain confidential and secure.
Thursday, August 25, 2011
Are Moving Expenses Deductibile for Armed Forces members? Read On!
AZ - Deductibility of moving expenses by Armed Forces members addressed
An active duty member of the U.S. Armed Forces who moves pursuant to a military order cannot deduct moving expenses related to that move on his or her Arizona income tax return because the active duty military pay is exempt from Arizona income tax. A full-year Arizona resident active duty Armed Forces member who has included a moving expense deduction in his or her federal adjusted gross income for a move made pursuant to a military order, and who is required to file an Arizona income tax return, must make the following adjustments on the Arizona income tax return:
- subtract from Arizona gross income all of his or her military pay included in federal adjusted gross income; and
- add to Arizona gross income the amount of moving expense deduction included in federal adjusted gross income for the move made pursuant to the military order.
A part-year Arizona resident active duty Armed Forces member who has included a moving expense deduction in his or her federal adjusted gross income for a move made pursuant to a military order must exclude that moving expense deduction in the computation of Arizona gross income.
This ruling supersedes Individual Income Tax Ruling ITR 93-11. Individual Income Tax Ruling ITR 11-4, Arizona Department of Revenue, June 22, 2011
Steve Mueller, C.P.A.
Thursday, August 4, 2011
When will the IRS withdraw a tax lien under its Fresh Start program?
Liens
When the IRS files a notice of federal tax lien (NFTL) it makes a claim to a taxpayer’s property as security or payment for a tax debt. The IRS must follow very detailed procedures, including sending the taxpayer a notice and demand for payment. If the taxpayer pays the tax debt, the IRS must release the lien within a prescribed period of time; generally within 30 days after the taxpayer satisfies the tax due, including interest and other additions.
There is an important distinction between release of a lien and withdrawal of a lien. Although the IRS may release the lien, the lien generally continues to be reflected on the taxpayer’s credit report unless the lien is withdrawn. This can negatively affect a taxpayer’s ability to get credit or, in some cases, could have a negative impact on the taxpayer obtaining a job if the employer reviews the taxpayer’s credit history.
Full payment
Under the “Fresh Start” program, the IRS has announced that liens will be withdrawn immediately once full payment is made by the taxpayer. The IRS has instructed taxpayers, whose lien has been released after full payment, to request withdrawal of the lien in writing. Taxpayers use Form 12277, Application for Withdrawal, to make this request.
Direct Debit installment agreement
The IRS will also withdraw a lien if the taxpayer agrees to enter into a Direct Debit installment agreement. In this arrangement, the taxpayer consents to having funds automatically debited from a bank account for the agreed upon installment amount. The IRS prefers Direct Debit installment agreements because they are automatic: the taxpayer does not need to remember to send a check or money order.
Not everyone is eligible for lien withdrawal after entering into a Direct Debit installment agreement. The IRS has explained on its web site that qualifying taxpayers are individuals; active businesses with income tax liability only (this would exclude active businesses with unpaid employment taxes); and defunct businesses with any type of tax debt. The current amount owed by the taxpayer must be $25,000 or less. The IRS has advised on its web site that taxpayers owing more than $25,000 may pay down the balance to $25,000 prior to requesting the lien withdrawal to be eligible for the relief. Additionally, the taxpayer’s Direct Debit installment agreement must pay in full the amount owed within 60 months or before the collection statute expires, whichever is earlier. The taxpayer also must have made three consecutive Direct Debit Payments before the IRS will withdrawal the lien.
Taxpayers should use Form 12277 to request withdrawal of a lien after entering into a Direct Debit installment agreement. The IRS warned it will file a new NFTL if the taxpayer subsequently defaults on its Direct Debit installment agreement.
Lien filing thresholds
The IRS has also adjusted the lien filing threshold under the Fresh Start program. The Fresh Start changes increase the IRS lien filing threshold from $5,000 to $10,000. However, the IRS has reserved the right to file liens on amounts less than $10,000 when circumstances warrant.
If you have any questions about withdrawing a lien under the IRS “Fresh Start” program, please contact our office.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Monday, June 20, 2011
Foreign Bank Accounts - Deadline June 30, 2011
If you have a foreign bank account, please take note. The Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, or "FBAR", must be completed and filed by June 30 for persons having a financial interest in and signatory and other authority over foreign accounts with a combined value that exceeded $10,000 at any time during the preceding calendar year. There is no extension of time for filing the FBAR. It is filed separately with the Treasury Department in Detroit, because FBAR is for the U.S. Department of Treasury and not the IRS. You may "hand deliver" your FBAR to a local IRS office for forwarding to Treasury in Detroit, but I would get a receipt from the IRS indicating the date of delivery.
If you realize that you have never filed this report for previous years and should have, please contact me for starters. Checking the boxes, "YES" for answering the questions at the bottom of your Form 1040, Schedule B probably was not good enough, either. The Treasury, and not just the IRS, is very serious about unreported foreign income and assets. The penalties are high and are not necessarily limited to being just civil in nature. Criminal penalties with possible jail time are possible. Prominent individuals, who previously had not reported foreign accounts, are currently facing imprisonment!
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