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!
Meet deadlines WITHOUT Stress! I am your "Money Man"
Tuesday, April 12, 2011
TAX DUE DATES, EXTENSIONS, & AMENDING RETURNS
Most of you know your federal and California income tax returns are due to be filed, and if any balances owed, are to be paid by April 18th. This year the government is giving most filers an extra three (3) days because the normal April 15th due date, is a Friday and also a holiday in certain regions of the Country. So if Friday, April 15th, is a holiday the next business day is Monday, April 18th. Along with any income tax returns to be filed, gift taxes should be paid, if owed, and filed with Form 709. The 2010 Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, was finally released on Friday(March 18) reflecting the changes made by Congress under their Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111-312) which was just enacted on December 17, 2010. We should always remember that it's the IRS that has to update or develop a form (with instructions) to turn complicated laws Congress passes into reality.
If it's not possible to gather the necessary information together to prepare your return, an extension requesting additional time to file will need to be filed. However, any additional tax beyond what has already been withheld or paid as "estimates" still needs to be paid by April 18th in order to avoid any late payment penalties plus interest. The extension, if granted, will allow up to 6 additional months (usually an October 15th due date) to file your return.
Finally, if you discovered that you forgot to: take another deduction, report a Form 1099 that you received late, or make other changes to your 2007 income tax return, you can still amend your 2007 return. The amended 2007 return needs to be filed by no later than 3 years after you filed your original return. Therefore, if you filed your original 2007 return before or on April 15, 2008, the amended return is due on April 18, 2011. If you filed your original 2007 return under extension on, say July 23, 2008, your amended 2007 return would be due by July 25, 2011. You get the extra days because July 23 is a Saturday and July 25 is the next business day.
As you can tell from the above, due dates are important and should be watched. I therefore always recommend that when you file a tax return with the IRS and/or your State's taxing authority, you should obtain proof for the date of filing. When filing by mail get from the Post Office a certified mail receipt with return receipt requested, and when e-filing get an e-mail advising that your return was received by the IRS or State's e-file center for e-filing.
Thursday, April 7, 2011
Bonus Depreciation extended thru 2010
The Small Business Jobs Act of 2010 extended 50 percent bonus depreciation through the end of 2010. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended bonus depreciation for two years (through the end of 2012) and increased the bonus depreciation allowance rate from 50 percent to 100 percent for qualified property acquired after September 8, 2010 and before January 1, 2012, and placed in service before January 1, 2012.
Nevertheless, the additional first-year bonus depreciation amount applicable to vehicles is limited to $8,000, whether other assets in the same depreciation class are entitled to 50 percent or 100 percent bonus depreciation. Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempt from the luxury vehicle depreciation caps (under Code Sec. 280F).
Steve Mueller CPA Auburn, CA www.SteveMuellertax.com
Nevertheless, the additional first-year bonus depreciation amount applicable to vehicles is limited to $8,000, whether other assets in the same depreciation class are entitled to 50 percent or 100 percent bonus depreciation. Sport Utility Vehicles (SUVs) and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempt from the luxury vehicle depreciation caps (under Code Sec. 280F).
Steve Mueller CPA Auburn, CA www.SteveMuellertax.com
Monday, March 21, 2011
IRS takes new steps to help struggling taxpayers
The IRS is taking new steps to help taxpayers buffeted by the recession. The agency intends, among other things, to make it easier for taxpayers to obtain a lien withdrawal and to offer installment agreements to more small businesses.
IRS Commissioner Douglas Shulman announced the new initiatives in Washington, D.C., on February 24. “These new steps are in the best interest of both taxpayers and the tax system. People will have a better chance to stay current on their taxes,” Shulman said. Many of the details of the changes are expected to be fleshed out in future announcements and guidance from the IRS.
Tax liens
A tax lien gives the IRS a claim to a taxpayer's property as security or payment for a tax debt. Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
Shulman announced that liens will be withdrawn once full payment of taxes is made if the taxpayer requests it. Additionally, the Service will allow lien withdrawals in certain cases where taxpayers enter into a direct debit installment agreement. The IRS intends to revise its internal procedures to expedite the withdrawal of liens.
The distinction between releasing a lien and withdrawing a lien is important. Once the IRS files a tax lien, a taxpayer's credit rating may be harmed. If the IRS releases the lien, the lien continues to be reflected on the taxpayer's credit report. When a lien is withdrawn, it is removed from the taxpayer's credit report.
Installment agreements
An installment agreement allows taxpayers to make a series of monthly payments over time to satisfy their tax debts. Certain installment agreements are called “streamlined” because they do not require a financial statement.
Shulman announced that the IRS is raising the threshold amount for small businesses from $10,000 in tax liabilities to $25,000 in tax liabilities for a streamlined installment agreement. To participate, a small business must make its payments through direct debit. “By expanding payment options we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations,” Shulman said.
Offers in compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer's liabilities for less than the full amount owed. The IRS may accept an OIC based on three grounds: (1) doubt as to collectability; (2) doubt as to liability; or (3) effective tax administration. Acceptance of an OIC is within the sole discretion of the IRS. The OIC program is frequently misunderstood by taxpayers. Claims of being able to settle tax debts for much less than the amount owed are usually exaggerated.
Shulman announced that the IRS is expanding a new streamlined OIC program to cover taxpayers with annual incomes up to $100,000 to participate. Taxpayers must owe less than $50,000 to participate.
If you have any questions about the new steps the IRS is taking, please contact our office.
Tax liens
A tax lien gives the IRS a claim to a taxpayer's property as security or payment for a tax debt. Once a lien arises, the IRS generally cannot release the lien until the taxes, penalties, interest, and recording fees are paid in full or until the IRS may no longer legally collect the tax.
Shulman announced that liens will be withdrawn once full payment of taxes is made if the taxpayer requests it. Additionally, the Service will allow lien withdrawals in certain cases where taxpayers enter into a direct debit installment agreement. The IRS intends to revise its internal procedures to expedite the withdrawal of liens.
The distinction between releasing a lien and withdrawing a lien is important. Once the IRS files a tax lien, a taxpayer's credit rating may be harmed. If the IRS releases the lien, the lien continues to be reflected on the taxpayer's credit report. When a lien is withdrawn, it is removed from the taxpayer's credit report.
Installment agreements
An installment agreement allows taxpayers to make a series of monthly payments over time to satisfy their tax debts. Certain installment agreements are called “streamlined” because they do not require a financial statement.
Shulman announced that the IRS is raising the threshold amount for small businesses from $10,000 in tax liabilities to $25,000 in tax liabilities for a streamlined installment agreement. To participate, a small business must make its payments through direct debit. “By expanding payment options we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations,” Shulman said.
Offers in compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer's liabilities for less than the full amount owed. The IRS may accept an OIC based on three grounds: (1) doubt as to collectability; (2) doubt as to liability; or (3) effective tax administration. Acceptance of an OIC is within the sole discretion of the IRS. The OIC program is frequently misunderstood by taxpayers. Claims of being able to settle tax debts for much less than the amount owed are usually exaggerated.
Shulman announced that the IRS is expanding a new streamlined OIC program to cover taxpayers with annual incomes up to $100,000 to participate. Taxpayers must owe less than $50,000 to participate.
If you have any questions about the new steps the IRS is taking, please contact our office.
Saturday, March 5, 2011
Will Small Business Be Spared From More Form 1099 Requirements?
I often hear the phrase that "change is good." However, as a skeptical CPA, I'll say to myself, "that depends."
Two recent changes to the tax law that concern Form 1099 - MISC aren't very good for small businesses. The increased compliance necessary to meet the new changes could be quite burdensome for small business, and I believe won't really derive much revenue for the government. In case you don't remember, Forms 1099 - MISC are prepared by the payer for services performed in connection with a "trade or business" to a payee-provider. The Forms are given to the payee by the payer usually by January 31 of the following year. They report the payee's name, address, taxpayer identification number and amount paid during the calendar year. If the payee doesn't want to provide this information to the payer, the payer is required to withhold amounts from their payment known as "backup withholding". This backup withholding is added in with the payroll tax filings.
The first change requires that businesses must now issue Form 1099 - MISC to all payees/vendors who weren't tax exempt entities and were paid $600 or more for the year. Payments for property were also specifically included, too. Previously Form 1099's had to be issued to non-corporate payees/vendors who met the $600 threshold and were for business services. This new change is part of The Patient Protection and Affordable Care Act (PL 111-148) or "Obamacare" and was expected to help pay for the new act by increasing compliance among non-reporting individuals and entities. However, most of these non-reporting individual and entities were already covered under the previous law for several decades, now. The primary type of entity left out was corporations, and they have their own forms to file each year already. So I may be wrong, but I don't see how these new compliance measures will significantly increase revenues.
The second change has to do with rental properties and the individuals who own them and was part of The Small Business Jobs Act (PL 111-240). Under this law individuals, who receive rent income and pay service providers $600 or more, need to file Forms 1099 - MISC for these payees. In this case gardeners and utilities would need to receive a Form 1099 - MISC. This requirement could be quite burdensome for retirees who live in a duplex and rent out their other unit.
Currently the US Congress is trying to repeal these changes after they originally passed them in their previous term. As of this writing (February 27) the Senate has pass a bill that would repeal the first change regarding the "expanded" reporting requirements under Obamacare, but not the rental property owners' requirement. The House Ways and Means Committee has approved a bill repealing both changes and has sent it to the full House of Representatives.
If the Congress is unable to repeal these new requirements, the reporting for rental property expense payments will take effect beginning January 1, 2011 and be reportable by the following year. The expanded service reporting will start on January 1, 2012. Let's hope they can get the changes in on time and that will be good.
Friday, March 4, 2011
Glad to be Blogging about Smart Money Issues!
Looking forward to sharing insights on Taxes, Accounting and more!
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