IR-2011-124, Dec. 23, 2011

WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).    

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.

Printed with permission of NATP.

According to Steven Miller, IRS Deputy Commissioner for Services and Enforcement, tax professionals will soon have to include a due diligence checklist when filing tax returns that claim the earned income tax credit. The additional required documentation is an effort to deter fraudulent claims. No additional information regarding this required documentation is available at this time, but we expect to find out more information as the 2012 filing season approaches.

IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18; Taxpayers Impacted by Recent Tax Breaks Can File Starting in Mid- to Late February  

WASHINGTON — The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

The IRS also cautioned taxpayers with foreign accounts to properly report income from these accounts and file the appropriate forms on time to avoid stiff penalties.
“The IRS has made important strides at stopping tax avoidance using offshore accounts,” said IRS Commissioner Doug Shulman. “We continue to focus on offshore tax compliance and people with offshore accounts need to pay taxes on income from those accounts.”

The IRS also reminded tax professionals preparing returns for a fee that this is the first year that they must have a Preparer Tax Identification Number (PTIN). Tax return preparers should register immediately using the new PTIN sign-up system available through www.IRS.gov/taxpros.

For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

In addition to extending those tax deductions for 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 and a number of other tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses.  The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011.  Those changes have no effect on the 2011 filing season.

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the recent tax law changes. In the interim, taxpayers affected by thesetax law changes can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes. Additional information will be available at www.IRS.gov.

For taxpayers who must wait before filing, the delay affects both paper filers and electronic filers. The IRS urges taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax law changes and ensure accurate tax returns. 

Except for those facing a delay, the IRS will begin accepting e-file and Free File returns on Jan. 14. Additional details about e-file and Free File will be announced later this month.

The IRS is also continuing to focus on taxpayer service. Taxpayers with questions should check the IRS website at www.IRS.gov, call our toll-free number or visit a taxpayer assistance center.

This is also the first filing season that tax packages will not be mailed to individuals or businesses. There are still many options for taxpayers to get paper forms and instructions if they need them. In recent years, fewer and fewer taxpayers received these mailings. Last year, only 8 percent of individuals who filed tax returns received tax packages in the mail. Taxpayers can still get any forms and instructions they need online at www.IRS.gov, or they can visit local IRS offices or participating libraries and post offices.

In addition, individuals making $49,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly.

IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $58,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, located on the front page of www.IRS.gov. Taxpayers can generally get information about their refunds 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

Taxpayers need to provide the following information from their tax returns: (1) Social Security Number or Individual Taxpayer Identification Number, (2) filing status, and (3) the exact whole dollar amount of your anticipated refund. If the U.S. Postal Service returns the taxpayer’s refund to the IRS, the individual may be able to use “Where’s My Refund?” to change the address the IRS has on file, online.

Also, taxpayers may complete a Form 8822, Change of Address, and send it to the address shown on the form. They may download Form 8822 from www.IRS.gov or order it by calling 800-TAX-FORM. Generally, taxpayers can file an online claim for a replacement check if more than 28 days have passed since the IRS mailed their refund.

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