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A New Status Tool is Available on the IRS Website | Tax Tip of the Week | No. 200 May 29, 2013

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Where’s My Amended Return?

If you have filed an amended return (Form 1040x) and want to check on its status, the IRS now has a new tool to make that easier.  You can now go to “Where’s My Amended Return?” 

For years the Service has hosted a widely popular “Where’s My Refund?” status tool.  We applaud them for adding this new feature.

Please note, however, it is still taking the IRS 8-12 weeks to process an amended return.

Let us know how you like it!

As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

A Look Back at 2012 and a Preview of 2013 Tax Tip of the Week | No. 199 May 22, 2013

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IRS Practice and Procedure Changes

In 2012, a $305 million IRS budget reduction resulted in $5 billion less in enforcement revenue.

On January 6, 2012, the IRS announced the results of its most recent measurement of annual losses to the U.S. Treasury due to taxpayer noncompliance, also known as the tax gap. This study reflected the IRS’ estimates of noncompliance for tax year 2006. The IRS’ conclusion: In only five years, the tax gap increased from $345 billion in 2001 to $450 billion in 2006. In 2012, the IRS implemented new programs and made changes to its procedures to try to close the tax gap. But budget cuts also meant that the IRS had to conduct compliance activity with $305 million less. The result was $5 billion less in revenue from enforcement activities.

Despite budget challenges, the IRS expanded some programs and improved others. Here are some of the most significant changes in IRS compliance that took place in 2012 – and a look ahead at what to expect in 2013.

Examinations

In 2012, the IRS continued to focus on correspondence (mail) examinations, which contributed to an overall audit coverage rate of slightly more than 1% for individual taxpayers. This rate dropped slightly in 2012 due to a reduction in examination personnel. The IRS will continue to focus on Schedule A deductions and tax credits in these examinations.

In 2012, the IRS started to focus closely on flow-through entities, and increased field examinations of partnerships and S corporations by 18.7%. In 2013, the IRS will focus on partnerships, looking closely at abusive transactions and underreported income, and on S corporations, looking closely at officer compensation and losses taken in excess of basis. IRS field agents will also continue to investigate small businesses, including e-commerce, for underreported income in 2013.

In 2012, the IRS emphasized accuracy-related penalty assessments and held preparers responsible for return errors and omissions, especially in areas of rental property and deducting S corporation losses in excess of basis. This trend will continue in 2013.

Penalties

In 2012, the IRS continued to pursue penalties to deter noncompliance. Since 2005, accuracy-related penalties assessed against individual taxpayers have increased 757%. In 2013, the IRS will continue to press for accuracy-related penalties in CP2000 underreported adjustments and audits.

For 2011 individual returns, the IRS provided a six-month grace period for unemployed and self-employed taxpayers who experienced a significant reduction in income. For certain taxpayers who filed Form 1127-A, this grace period allowed an extension of time to pay, without penalty, until Oct. 15, 2012. The IRS has not extended this provision for 2012 returns.

In 2012, the Treasury Inspector General for Tax Administration (TIGTA) criticized the IRS about what TIGTA described as a lack of uniformity in applying penalty abatement, and specifically criticized the IRS for not facilitating access to the first-time abatement relief option for failure to file, failure to pay, and failure to deposit penalties. First-time abatement is an administrative waiver that many taxpayers qualify for, but that the IRS does not readily publicize and that practitioners often don’t understand or request. In 2013, look for more pressure on the IRS to provide a form to simplify the process of requesting all types of penalty abatement.

Collection

In 2012, the IRS instituted additional Fresh Start initiatives to help struggling taxpayers pay their taxes. As part of these initiatives, the IRS relaxed streamlined installment agreement rules for individuals by increasing the threshold from $25,000 to $50,000, and the time to pay from 60 months to 72 months. The IRS also increased the qualifying amount for business trust fund express installment agreements from $10,000 to $25,000 to help businesses pay employment taxes and avoid the filing of a federal tax lien.

In 2012, the IRS made significant changes to its offer in compromise (OIC) program terms to provide more access to the program. The IRS revised the future income calculation and made changes to allow taxpayers more expenses in determining the offer amount. In 2012, these changes allowed many more taxpayers to qualify for and receive an OIC.

Installment agreement and OIC changes in 2012 were part of a multiyear effort by the IRS to help struggling taxpayers with better payment alternatives. In 2013, we will likely continue to see a kinder, gentler IRS in regard to payment alternatives.

IRS Matching Programs

2012 was a breakthrough year for IRS automated matching programs. In 2012, it’s likely that the IRS exceeded the 4.7 million individual CP2000 (underreported) notices that it sent in 2011. In 2012, this was the only major IRS compliance program that generated increased enforcement revenue over 2011. However, the IRS was not limited to information matching on individual returns.

In 2012, the IRS initiated a business information-matching program and a Form 1099-K matching program. The IRS sent new notices in late 2012 questioning businesses on the accuracy of their returns, based on information statements filed under business employer identification numbers (EINs). The IRS also matched Forms 1099-K to business returns and sent inquiries to taxpayers with potential discrepancies, requesting explanations for possible unreported income.

Editor’s Note:  We are seeing a huge increase in correspondence audits in our office.  Two key things to remember:  most of the notices are incorrect and most importantly bring the notice to us quickly!

The IRS may get more aggressive, but they have to play by the rules.  We are here to make sure the rules work for you.

As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Another New Requirement is Coming…..Tax Tip of the Week | No. 198 May 15, 2013

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IRS to Require EIN Holders to Provide Updated Info

The Internal Revenue Service has issued final regulations requiring any person who has been assigned an Employer Identification Number to provide updated information to the IRS. 

The regulations affect people and businesses with EINs and are aimed at enhancing the IRS’s ability to maintain accurate information about persons who have been assigned EINs. The regulations are expected to take effect in 2014.

The final regulations require any person assigned an EIN to provide updated information to the IRS in the manner and frequency prescribed by forms, instructions or other appropriate guidance.

The IRS noted in the regulations that the collection of this information is necessary to allow the IRS to gather correct application information with respect to persons who have EINs. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

“Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law,” said the regulations. Generally, tax returns and tax return information are confidential, as required by Section 6103 of the Tax Code.

The Treasury Department and the IRS originally published a notice of proposed rulemaking in the Federal Register, on March 14, 2012, requiring persons issued EINs to provide updated application information to the IRS. The IRS did not receive any requests for a public hearing, but several written comments were received. After considering all the comments, the proposed regulations were adopted without amendment.

Two commentators objected to the increased burden on entities resulting from the updating requirement and questioned the necessity of the requirement, and two suggested that the estimated annual average burden of 15 minutes provided in the Paperwork Reduction Act section of the proposed regulations underestimated the actual burden to entities and their agents. One commentator also argued that this rule is “material” because the related costs could reach over $100,000,000.

The Treasury and the IRS considered the objections, but concluded that updating the application information was necessary for effective tax administration. They noted that some EIN applicants continue to list individuals temporarily authorized to act on behalf of EIN applicants (sometimes referred to as “nominees”) as principal officers, general partners, grantors, owners, and trustors on EIN applications. “The listing of nominees or other individuals who are no longer associated with the entity prevents the IRS from gathering and maintaining correct and current information with respect to the responsible party for the EIN applicant,” said the IRS and the Treasury. “The requirement in the final regulations to provide updated application information will allow the IRS to ascertain the true responsible party for persons who have an EIN. This knowledge will prevent unnecessary delays by allowing the IRS to contact the correct persons when resolving a tax matter related to a business with an EIN. In addition, this information will help the IRS combat schemes that abuse the tax system through the use of nominees, which results in the concealing of the true responsible party for entities that hide assets and income.”

The Treasury and the IRS also concluded that the costs related to this rule are not “material.” Any associated burden on entities resulting from this requirement would be minimal, and the costs and burden would be outweighed by the benefits to tax administration. They argued that an entity with an EIN would always know the identity of its appropriate responsible party, which is generally defined as the individual with the authority to control, manage or direct the entity and the disposition of its funds and assets. The updating requirement in the final regulations requires entities to keep the IRS informed of the identity of the responsible party.

Editor’s Note:  At this time we do not know who this effects or how the reporting is to be filed.  We will be watching this closely and keep you posted. 

As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

IRS Has Different Definitions For Children | Tax Tip of the Week | No. 197 May 8, 2013

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Do You Know a Child When You See One?
 
Recently the Tax Court ruled on a situation where a taxpayer claimed dependent exemptions and the Child Tax Credit for two children.  Here are the facts:  the taxpayer cared for two of her cousin’s children as if they were her own.  The children resided with her, and she acted as their guardian.  They were neither placed in the home as foster children nor did the taxpayer adopt the children.
 
On her tax return, the taxpayer claimed both children as dependents and claimed the $2,000 Child Tax Credit ($1,000 for each child).
 
A dependent is defined as a qualifying child or a qualifying relative.  One of the requirements for being a qualified child is that the child must be the taxpayer’s child, brother, sister, stepbrother, stepsister or a descendant of such relatives.  A child who does not meet the definition of a qualified child can still be claimed as a dependent if he or she meets the qualifying relative requirements for the year at issue.  To be a qualifying relative, the individual must have the same place of abode as the taxpayer and be a member of the taxpayer’s household for the entire year.  In addition, the taxpayer must provide over one-half of the individual’s support.
 
By tax code, the Child Tax Credit is allowed with respect to each qualifying child of the taxpayer in the amount of $1,000.  Since her cousin’s two children did not fall under the definition for a qualifying child, the IRS was ruled correct in disallowing the Child Tax Credit.  However, the IRS was correct in allowing her to claim the children as dependents because they each met the requirement of a qualifying relative.
 
As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Updates on Social Security | Tax Tip of the Week | No. 196 May 1, 2013

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Seven New Social Security Rules for 2013

Payroll tax cut ended.  As you probably noticed by now, your payroll check is less than last year.   This is because the payroll tax cut expired at the end of 2012.  In 2011 and 2012 you paid 4.2% of your income into Social Security.  Starting in 2013, the Social Security tax rate has returned to 6.2%.

Higher payroll tax cap.  The payroll tax cap increased by $3,600 for 2013.  This means you will now pay Social Security taxes on $113,700 of your income, up from $110,100 in 2012.  As always, there is no maximum earnings limit on the 1.45% (2.9% if self-employed) Medicare tax.

More online services.  A trip to the Social Security office is no longer necessary to start your Social Security payments.  A growing number of retirees are now claiming benefit payments online.  For the first time in 2012, you could access your Social Security statements online, including your complete earnings history and expected payments.  In early 2013, Social Security added online services including the ability to access a benefit verification letter and payment history.

Reduced office hours.  Social Security offices are reducing the hours they are open to the public to save money and avoid paying overtime to their workers.  Social Security offices nationwide began closing offices 30 minutes early each day starting on November 19, 2012.  Offices will also be closed at noon every Wednesday.

Paper checks will end.  On March 1, 2013 the Treasury department stopped mailing paper checks to Social Security recipients.  The preferred method for retirees to receive benefits is to have the funds directly deposited in their bank or credit union checking accounts.  For those recipients without bank accounts, the funds will be deposited onto a prepaid Direct Express Debit MasterCard.  Note that over 93% of Social Security and Supplemental Security Income (SSI) recipients have already signed up for direct deposit.

Higher earnings limit.  You have the option of receiving Social Security benefits at age 62.  If you continue to work between the ages of 62 and 66 and receive Social Security benefits you might have part or all of those benefits temporarily withheld.   Workers between the ages of 62 and 66 can earn up to $15,200 in 2013, after which $1 in benefits will be withheld for every $2 of income above the earnings limit.  People who turn 66 this year can earn up to $40,080, and then $1 of benefits will be withheld for every $3 earned above the limit.  Earnings after the month you turn 66 are not subject to any earning limits.  Benefits may be recalculated at age 66 to reflect any previously withheld benefits and continued earnings.

Bigger Payments.  Social Security beneficiaries received a 1.7% increase in benefits in 2013 due to the increased cost-of-living index.  Beginning in January 2013, the average Social Security benefit increased from $1,240 to $1,261/month.  The maximum Social Security benefit for someone turning 66 (and receives benefits for the first time) in 2013 is $2,533/month.  The actual amount depends on a formula that considers your lifetime earnings.

As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.