Updated 8/5/10

IR-2010-89, Aug. 5, 2010

WASHINGTON — The Internal Revenue Service today announced that starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with the “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

The IRS announcement would remove the debt indicator starting with the upcoming 2011 tax filing season. The IRS noted that taxpayers will continue to have access to information about their tax refunds and any offsets through the “Where’s My Refund?” service on IRS.gov.

RACs are temporary bank accounts established on behalf of a taxpayer into which a direct deposit refund can be received and out of which a bank typically issues a payment to the taxpayer.

With both RALs and RACs, tax preparation and product fees are subtracted directly from the refund, and the taxpayer does not make any “out-of-pocket” payments. They are frequently marketed to taxpayers who do not have cash to pay for professional tax preparation services.

In a related effort, the IRS plans to explore the possibility of providing a new tool for the 2012 tax filing season to give taxpayers a mechanism to use an appropriate portion of their tax refund to pay for the services of a professional tax return preparer. The IRS plans to engage with taxpayers, consumer advocates and the tax return preparer community to consider whether providing this option would be a cost-effective way for consumers to pay for tax return preparation services.

Updated 4/4/10

Massachusetts Severe Storm and Flooding Victims Have Until May 11 to File Their Tax Returns  

MA-2010-15, March 31, 2010

Victims of severe storms and flooding beginning March 12 in Massachusetts may qualify for tax relief from the Internal Revenue Service.

The President has declared Bristol, Essex, Middlesex, Norfolk, Plymouth, Suffolk and Worcester counties federal disaster areas qualifying for individual assistance.

As a result, the IRS is postponing until May 11 certain deadlines for taxpayers who reside or have a business in the disaster area. This includes the April 15 deadline for filing 2009 individual income tax returns, making income tax payments and making 2009 contributions to an individual retirement account (IRA).

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after March 12 and on or before March 29, as long as the deposits were made by March 29.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the Postponement Period.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

The counties listed above constitutes a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Under section 7508A, the IRS gives affected taxpayers until May 11, 2010, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after March 12, 2010, and on or before May 11, 2010.

The IRS also gives affected taxpayers until May 11, 2010, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007), that are due to be performed on or after March 12 and on or before May 11.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after March 12, 2010, and on or before March 29, 2010, provided the taxpayer made these deposits by March 29, 2010.

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Massachusetts/Severe Storms and Flooding” at the top of the form so that the IRS can expedite the processing of the refund.

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS Web site, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Updated 3/23/2010

Subject:  Did I Receive a 2009 Economic Recovery Payment? Web Tool Now Available  The IRS web-based "Did I Receive an Economic Recovery Payment?" look up tool is now available. This tool gives taxpayers a simple way to find out if they received the one time $250 ERP payment and which agency made the payment. Taxpayers who had earned income in 2009 or are government retirees and received an Economic Recovery Payment need to report whether or not they received an ERP and the amount when they prepare their Schedule M, Making Work Pay and Government Retiree Credits. The one time $250 ERP was paid in 2009 to individuals in the following categories:

When taxpayers access"Did I Receive an Economic Recovery Payment? they will need to enter three pieces of information to determine if they received an ERP:

A separate Web inquiry must be made for each taxpayer, even if filing a joint tax return.  

Updated 3/12/10

Printed with permission of NATP.

The IRS has released their recommendations for registering paid preparers. NATP is pleased to note that several of its recommendations have been included in the final report. The IRS will require all individuals who are required to sign a federal income tax return as a paid preparer to register and obtain a preparer identification number (PTIN). Competency testing will be required for all paid preparers who are not enrolled agents, CPAs, or attorneys. The IRS will offer two examinations both based on 1040 returns only: one exam will cover wage and nonbusiness returns in the 1040 series and the other will cover wage and small business returns in the 1040 series. Return preparers will be required to take one of the two exams. We were pleased to note that the IRS is recommending that return preparers be given three years from the initial implementation date to pass the required exam. There will be no grandfathering of any kind based on years of experience. In addition, the IRS will require 15 hours of annual continuing professional education consisting of three hours of federal tax updates, two hours of ethics, and ten hours of general federal taxation.

As an organization dedicated to excellence in federal tax research, education, and information for more than 30 years, NATP is poised to help all tax professionals through this transition to registration. NATP will have the necessary educational programs to support anyone studying for the IRS exams, as well as education to meet the continuing education requirements. We will continue our mission to be a partner for all tax professionals in helping them achieve business success through education, resources, and other services pertinent to the tax preparation business.

The IRS plans to implement the registration requirements in 2011. These regulations do not affect the 2010 filing season.

The full text of the report is available here - http://www.irs.gov/pub/irs-utl/54419l09.pdf

Updated 1/29/10

Taxpayers in Nine States and the District of Columbia File with Different Centers this Year  Washington — The Internal Revenue Service announced today that some taxpayers who file paper income tax returns will send them to different processing centers this year. Taxpayers in Maine, Maryland, Massachusetts, New Hampshire, Vermont, Virginia and the District of Columbia will now send their tax returns to the IRS Kansas City Service Center in Kansas City, Mo. Taxpayers in Indiana and Michigan will send their tax returns to the IRS Fresno Service Center, in Fresno, Calif. Taxpayers in Alabama will send their tax returns to the IRS Austin Service Center in Austin, Texas. The IRS continuously monitors work flow at its centers and makes appropriate adjustments by altering the volume of returns to be sent to each. Taxpayers who use the envelope provided with the income tax instructions do not have to be concerned with the address change; their returns automatically will go to the correct center. Taxpayers who e-file will not be affected by the address changes. Two out of three filers choose IRS e-file; it’s faster, easier, more accurate and more convenient than filing a paper tax return. For taxpayers who file paper returns, the correct center addresses are on labels inside the tax packages they receive in the mail. Taxpayers who do not receive a package and need the service center address should refer to the back cover of the instructions to Form 1040, Form 1040A and Form 1040EZ.  

Updated 1/7/10

For those preparers not already subject to Treasury Department and IRS oversight (Enrolled Agents [EA's], CPA's and attorneys) the IRS has proposed higher standards. The IRS undertook a six-month study (The Return Preparer Review) and has made their recommendations proposing registration, [competency] testing, and a continuing education requirement for all tax return preparers.The recommendation also extends the ethical rules found in Treasury Department Circular 230 to all return preparers, other than only  EA's, CPA's, and attorneys. This would allow the IRS to suspend or discipline tax return preparers who engage in unethical or disreputable conduct.

For more information please visit:http://www.irs.gov/newsroom/article/0,,id=217811,00.html?portlet=6

For more information please visit: http://www.irs.gov/newsroom/article/0,,id=204671,00.html

Taxpayers should be aware of some changes to the law that apply to home purchases after Nov. 6, 2009, the date of enactment of the new law.

For more information please visit: http://www.irs.gov/newsroom/article/0,,id=217784,00.html