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Daily Updates
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| February 22, 2011 |
| Posted Wednesday, February 22, 2012 |
Extended Estate Portability Election:
The IRS accounced the estates of married individuals where a spouse died during the period 1/1/11-6/30/11, with assets of $5 million or less, will not have 15 months after the date of death to make a portability election under IRS Sec. 2010(c)(5). The portability election allows a surving spouse to take into account any unused exclusion amount from the deceased. The executor should file Form 4768 and Form 706 no later than 15 months after the date of death. The extended time is available even if the estate did not request an automatic six-month extension prior to the refular nine-month filing deadline. Executors should enter the notation "Notice 2012-21, Extension for Good Cause Shown" at the top of Form 4768. News Release IR-2012-24 ; Notice 2012-21, 2012-10 IRB.
Payroll Tax Cut Etension:
On 2/17/12, Congress sent President Obama the "Middle Class Tax Relief and Job Creation Act of 2012," extending the 2% payroll tax cut through the end of 2012. The maximum savings for 2012 will be $2,202 (2% of $110,100) per taxpayer. The Act repeals the recapture provision that was to apply to taxpayers with wages exceeding $18,350 over the first two months of 2012.
Late Filing of Business Returns:
The failure to file penalty under IRC Sec. 6651 does not apply if the taxpayer can show that any delay was due to reasonable cause and not willful neglect. Beginining with 2011 forms, the instructions to Form 1065, Form 1120 and Form 1120S (andother forms in the 1065 and 1120 series) direct taxpayers to wait until they receive a late filing notice from the IRS before sending a reasonable cause explanation instead of attaching it to the late filed return, as instructed in 2010 and earlier years. Individual taxpayers can still include a reasonable cause explanation with Form 1040.
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| February 20, 2012 |
| Posted Monday, February 20, 2012 |
Extended Assessment Period:
An S corporation with five wholly-owned Controlled Foreign Corporations (CFCs) did not file Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) with its returns, as required under IRC Sec. 6038. The IRS held that IRC Sec. 6501(c)(8) extended the assessment period for the corporation and its two majority shareholders to three years after the date the information was furnished. The majority shareholders owned a sufficient percentage to be in control of the corporation and its CFCs, but the extended period probably did not extend the assessment period for the minority shareholders. CCA 201206014.
IRS Releases 2012 Dirty Dozen Tax Scams:
The IRS released the 2012 dirty dozen list of tax scams, which includes identify theft, hiding income offshore, advertisements for free money from the IRS or Social Security refunds or rebates, false Form 1099 refund claims, disguised corporate ownership and misuse of trusts. Identity theft tops the list of scams, and in 2011 the IRS protected more than $1.4 billion of taxpayer funds from being released into the wrong hands due to identify theft. News Release IRS-2012-23. |
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| February 17, 2012 |
| Posted Friday, February 17, 2012 |
IRS Communications with the Appeals Office:
The IRS updated its rules on communications between the Office of Appeals and other parts of the IRS that take place without the taxpayer or the taxpayer's representative ("ex parte communcations"). The rules are aimed and providing safeguards and procedures to retain the independence of Appeals. New guiding principles help in understanding the overall approach to ex parte communications including the application to collection due process cases and alternative dispute resolution proceedings. When there is a breach of the rules by Appeals, the affected taxpayer will be asked for input on the appropriate remedy. This revenue procedure is effective for communications between Appeals employees and other IRS employees that take place after 5/15/12. News Release IR-2012-12 ; Rev. Proc. 2012-18, 2012-10 IRB.
Tax Preparers Eligible to Obtain PTINS:
Proposed regulations incorporate prior guidance from Notice 2011-6 (2011-3 IRB 315) that expanded the list of tax preparers eligible to obtain a Prepareer Tax Identification Number (PTIN). Nonsigning preparers working under proper supervision and signing preparers of returns not covered by the competency exam (only returns in the Form 1040 series are currently covered by the competency exam) may pay the user fee and obtain a PTIN. Preparers in these two categories are not Registered Tax Return Preparers (RTRPs). Prop. Reg. 1.6109-2(a). |
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| February 16, 2012 |
| Posted Thursday, February 16, 2012 |
Almony Payments:
Divorced taxpayer modified their separation agreement with a requirement that husband pay a lump-sum amount in full settlement of future obligations to pay alimony and leave a portion of his net estate to his ex-wife, if she survived him. The IRS found that the lump-sum payment violated the IRC Sec 71(b) requirement that payments not be designated as excludable from income under the divorce or separation instrument and since there were no past-due liabilities, none of the lump-sum amount was deductible by the husband or income to the wife. Ltr. Rul. 201206005.
Charitable Contributions:
Taxpayers donated conservation easements on property that was zoned agricultural but also located in or near a gravel production district. They claimed charitable deductions based on an appraiser's determination that, absent the grany of easements, the best use of the property would have been for gravel extraction. The easements prohibited the mining and extraction of rocks and minerals. The court determined that the highest and best use of the property before the contribution was agricultural because it was not reasonable to assume that a hypothetical willing buyer would have considered the property to be a valie site for gravel mining in the donation year when there was no fulfilled demand or gravel market and no resonably foreseeable change in the future. Esgar Corporation, et al. , TC Memo 2012-35 (Tax Ct.). |
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| February 15, 2012 |
| Posted Wednesday, February 15, 2012 |
Administration's 2013 Revenue Proposals (the "Greenbook"):
The Treasury Dept. released the "General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals," better known as the "Greenbook". In part, the Administration wants to
- reinstate the top income tax rate to 39.6%
- reinstate the limitations on itemized deductions for upper-income taxpayers
- raise the top capital gain rate to 20%
- tax qualified dividends at ordinary rates
- eliminate tax preferences for oil and gas companies (e.g., IDC deduction, percentage depletion)
- raist the top rate for estates to 45% with an exclusion amount of $3.5 million
- make the 100% gain exclusion for Qualified Small Business Stock (QSBS) permanent
- make permanent the expended EITC for workers with three or more qualifying children.
To access the complete document, go to www.treasury.gov .
Child Tax Credit:
The IRS reminds taxpayers of the possible $1,000 credit for qualifying children. The seven qualification tests are
- age - a child must be under age 17
- relationship - the child must be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these
- support - the child must not have provided more than half of his own support
- dependent - the child must be claimed as a dependent on the return
- joint return - the child cannot file a joint return for the year
- citizenship - the child must be a U.S. citizen, U.S. national or I.S. resident alien
- residence - the child must have lived with taxpayers for more than half the year
The credit phase-out begins at $110,000 for MFJ ($55,000 MFS). IRS Tax Tip 2012-29.
Foreign Housing Exclusion:
Qualified individuals can exclude from gross income the applicable foreign earned income and housing cost amount. Under the general limitation, a qualified individual is limited to a maximum housing expense amount of $28,530 in 2012. Under IRC Sec. 911(c)(2)(B), the IRS can adjust this amount based on geographic differences in housing costs. This notice adjusts the general limitation in 2012 for specific locations in countries with high housing costs relative to U.S. housing costs. Notice 2012-19, 2012-10 IRB.
Schedule K-1s Issued Electronically:
The IRS issued new guidance allowing partnerships to provide Schedule K-1 electronically to partners who give their consent. The guidence describes
- how a partner's consent can be provided electronically through secure email or the parnership's internet page
- addresses how partners are to be informed about changes in software
- defines how the partnership is to provide access and printing instructions for electronis statements
- identifies the patnership's responsibility if the electronic Schedule K-1 is undeliverable.
A schedule K-1 furnished on a website must be retained on the website for the later of twelve months following the end of the partnership's tax year to which it relates or six months after the date of issuance. News Release 2012-21; Rev. Proc. 2012-17, 2012-10 IRB. |
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| February 11, 2012 |
| Posted Saturday, February 11, 2012 |
Charitable Gift of Home:
The taxpayers purchased lakefront property and donated the home that stood on the property to the local fire department to be burned down in a training exercise. Taxpayers then claimed a $76,000 charitable deduction using an appraiser's before-and-after approach. the 7th Circuit agreed with the Tax Court in finding that the value of the donated property did not exceed the value of the benefit received. Since there was no market for doomed houses as firefighter training sites, the courts looked to the most closely analogous situations of moving the house off-site or for salvage and concluded the home no substantial value. Rolfs v. Comm. , 109 AFTR 2d 2012-XXXX (7th Cir.)
Veterans Tax Credit:
The VOW to Hire Heroes Act of 2011 (enacted 11/21/11) expanded the Work Opportunity Tax Credit (WOTC), under IRC Sec. 51 , for businesses and tax-exempt organizations that hire eligible unemployed veterans on or before 12/31/12. The credit maximum is $9,600 per veteran for for-profit businesses and $6,240 for tax-exempt organizations depending on the length of unemployment, hours worked, first-year wages paid, and service-related disabilities. Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must normally be filed with the state workforce agency within 28 days after an eligible veteran begins work, but for those hired after 11/21/11 and before 5/22/12, employers have until 6/19/12 to file the form. Employers can transmit Form 8850 electronically or by fax. News Release IR-2012-17 ; Notice 2012-13, 2012-9 IRB. |
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| February 10,2012 |
| Posted Friday, February 10, 2012 |
IRS Smartphone Application:
The IRS announced the expanded version of its smartphone application, IRS2Go, that provides easier access to tools and information. The upgraded application includes three new tools:
- IRS YouTube videos ith channels available in multilingual and American Sign Language
- the latest IRS news releases delivered to user's phones
- the ability to order tax return transcripts delivered by the postal service.
News Release IR-2012-16.
Self-employed Pension Contribution:
Under IRC Sec. 404(a)(8), a self-employed taxpayer's pension contribution is a deductible expense to the extent it does not exceed earned income from the business. However, a self-employed taxpayer's contribution is not an expense, attrituable to the tax[ayer's trade or business. In this case, a self-employed real estate agent claimed her pension contributions on Sch. C, thereby reducing self-employment income. The Tax Court denied the deductions on Sch. C since no statutory authority attributes the contributions to a trade or business. The contributions were deductible on Form 1040, line 28. Lisa Laflamme, TC Memo 2012-36 (Tax Ct.).
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| February 9, 2012 **New QuickBooks Alert** |
| Posted Thursday, February 09, 2012 |
Intuit QuickBooks Payroll
Payroll Update: Revised Tax Tables
Intuit has released Payroll Update 21205, which includes revised tax tables to reflect the Social Security tax rate change that is scheduled to take effect on March 1, 2012.
How do I get the Payroll Update?
It's important that you receive everything in the Payroll Update to make sure that you are in compliance with legislation that affects your payroll. Just follow these three simple steps:
- Check to see if you have Automatic Updates turned on.
--Choose Help > Update QuickBooks.
--On the Options tab, you will see either Yes or No selected for Automatic Update.
- If Yes is selected, verify that you received Payroll Update 21205 from within QuickBooks. Go to Employees > Get Payroll Updates. You should see a message that says, "You are using tax table version 21205."
If you do not have version 21205, you need to download the update manually. http://payroll.intuit.com/support/kb/1001166.html .
- If No is selected for Automatic Update, you need to download the update manually with the about link.
Social Security Tax Rate for Employees
The Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765) that was signed into law on December 23, 2011 extended the 4.2% Social Security tax rate for employees through February 29, 2012. According to the Act, the employee tax rate will revert to 6.2% on March 1, 2012.
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| February 9, 2012 |
| Posted Thursday, February 09, 2012 |
Correspondence Audits:
In a recent blog post, National Taxpayer Advocate, Nina Olson, discussed the burdens placed on taxpayers resulting from the increased use of correspondence audits where the initiation, processing, and closing of the cause is fully automated. The biggest complaint of tax practitioners is that the IRS ignores any documentation sent in response to a correspondence exam notice. Tax examiners are not assigned to correspondence cases and a Notice of Deficiency is automatically issued if taxpayers are unable to insert themselves into the automated process and resolve the issues on a timely basis. The NTA blog is availiable at www.taxpayeradvocate.irs.gov/Blog .
Uncertain Tax Positions:
The 2011 instructions to Schedule UTP (Statement of Uncertain Tax Positions) include new examples for reporting tax positions on corporate returns. The guidance addresses the situation where a company did not record a reserve after a change in circumstances based on the company's expectation to litigate and prevail on the issue. An example is also added for situations in which the corporation is under IRS examination, reevaluates a prior year tax position, and subsequently records a reserve. Future developments concerning Schedule UTP will be posted to www.irs.gov/scheduleutp . |
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| February 8, 2012 |
| Posted Wednesday, February 08, 2012 |
Farmers Market Not Tax-Exempt:
The taxpayer operated a farmers market as a gathering place for local growers, producers, and consumers to buy and sell local goods. The business provided education, advertising, and training services and received membership fees and daily stall fees from its vendors. The IRS denied a tax-exemption under IRC Secs. 501(c)(5) and (6) because the business's activities were not aimed at bettering conditions within the farming industry or improving business conditions of one or more lines of business. Instead, the activities promoted the private interests of producers who rented stalls at the market. Ltr. Rul. 20120515.
Responding to a Late Filing Notice:
The failure to file penalty under IRC Sec. 6651 does not apply if the taxpater can show that any delay was due to reasonable cause and not willful neglect. Beginning with 2011 forms, the instructions to Form 1065 and Form 1120 (and other forms in the 1065 and 1120 series) direct taxpayers to wait until they receive a late filing notice from the IRS before sending a reasonable cause explanation instead of attaching it to the return. In 2010 and earlier years, taxpayers were instructed to attach the explanation to the late filed return. Individual taxpayers should include a reasonable cause explanation with Form 1040. |
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| February 6, 2012 |
| Posted Monday, February 06, 2012 |
Reasonable Cause for Late Filing Penalty:
Failure to file a timely return may result in a penalty up to 25% of the tax owed under IRC Sec. 6651(a). In this case the executor of an estate retained an attorney to handle the estate's administration, including the filing of returns and payments of taxes. Due to some physical and mental ailments suffered by the attorney's disability did not excuse the executor. Reliance on an agent is not resonable cause for late filing. Thomas Freeman v. U.S. , AFTR 2d 2012-XXXX (DC PA)
Retirement Plan Option:
In a pair of revenue rulings on retirement plan annuity options, the IRS (1) describes how the Qualified Joint Survivor and Survivor Annuity (QJSA) and the Qualified Preretirement Survivor Annuity (QPSA) apply when a deferred annuity contract is purchased under a profit-sharing plan, and (2) explains that employees receiving lunp-sum distributions from their employer's 401(k) plan can roll over some or all of those amounts to the employer's defined benefit pension plan (if allowed by the plan) to receive an annuity from that plan. Rev. Ruls. 2012-3 and 2012-4, 2012-8 IRB. |
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| February 3, 2012 |
| Posted Friday, February 03, 2012 |
IRA Bankruptcy Exemption:
A Wisconsin District Court reversed a bankruptcy court tuling and helpd that the debtors' funds in an inherited IRA qualified for exemption uder the bankruptcy statute because they were (1) retirement funds, and (2) exempt from tax under IRS Sec. 408. The court noted that all other bankruptcy courts and district courts have ruled in favor of the debtors for inherited IRAs, with the exception of a bankruptcy court in the 5th Circuit. THe court concluded that here may be reason to question whether inherited funds should be exempt as a matter of policy, but changing the exemption is a matter for Congress. Clark v. Rameker, 109 AFTR 2d 2012-XXX (DC Wisconsin).
Repayment of First-time Homebuyer credit:
The IRS posted a new online tool (available at www.irs.gov/individuals/article/o,,id=252351,00.html ) that provides account information for taxpayers who must report repayments of the first-time homebuyer credit. The tool shows the original amount of the credit, annual repayment amounts, total amount paid, and remaining balance. Accessing the tool requires a Social Security number, date of birth, and address. IRS Tax Tip 2012-22. |
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| February 2, 2012 |
| Posted Friday, February 03, 2012 |
Dealing with a Missing W-2:
Taxpayers that did not receive Form W-2 (Wage and Tax Statement) from an employer by 1/31/12 are advised by the IRS to perform the following steps:
- Contact the employer to inquire about its mailing and verify the address for the employer to reissue
- If the form is not received by 2/14/12, call the IRS and provide the employer's information, dates of employment, and estimated wage information
- File the return by 4/17/12 and attach Form 4852 (Substitute for Form W-2, Wage and Tax Statement) or request an extension
- Prepare an amended return on those occasions when a missing W-2 is eventually received that differs from a return that was filed using Form 4852. IRS Tax Tip 2012-20
Insurance Reservce Funds Not Deductible:
Taxpayer purchased insurance policies covering workers' compensation and employer's liability from X. The policies contained a loss reimbursement provision that required the taxpayer to reimburse X a certain amount for each claim. To meet this obligation, taxpater deposited funds with Y and then claimed an insurance deduction for premuims paid and unreimbursed funds remaining with Y at the end of the year. The 5th Circuit denied the taxpayer an insurance deduction under IRC Sec. 162 for the unused deposits because it did not create any shift in risk that would constitute insurance. The funds were simply held as a deposit in anticipation of potential future loss reimbursements. F.W. Services & Subsidiaries v. Comm., 109 AFTR 2d 2012-XXXX (5th Cir.).
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