Wednesday, January 31, 2007

Purchasers of Ford Hybrids Still Qualify for Tax Credit

Purchasers of Ford Hybrids Still Qualify for Tax Credit


IR-2007-22, Jan. 31, 2007

WASHINGTON — The Internal Revenue Service announced that purchasers of qualified Ford Motor Company vehicles may continue to claim the Alternative Motor Vehicle Credit. Also, four qualifying 2008 Ford hybrid vehicles were announced.

The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold. Ford sold 5,645 qualifying vehicles to retail dealers during the quarter ending Dec. 31, 2006. This brings the total number of Ford qualifying hybrids reported to date to 22,156.

Purchasers of Ford’s qualified vehicles may continue to rely on the previously issued IRS certifications concerning the vehicles’ qualification for the credit. However, those seeking the credit should remember that the full credit may be available only for a limited time.

The credit amount and make and model of previously certified vehicles sold are:

  • Ford Escape 2WD, Model Years 2005, 2006 and 2007 — $2,600
  • Ford Escape 4WD, Model Years 2005, 2006 and 2007 — $1,950
  • Mercury Mariner 4WD, Model Years 2006 and 2007 — $1,950

IRS also certified additional 2008 Ford vehicles for the following credit amounts:

  • Ford Escape 2WD Hybrid Model Year 2008 — $3,000
  • Mercury Mariner 2WD Hybrid Model Year 2008 — $3,000
  • Ford Escape 4WD Hybrid Model Year 2008 — $2,200
  • Mercury Mariner 4WD Hybrid Model year 2008 — $2,200

Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

See related item: Hybrid Cars and Alternative Motor Vehicles

Mistakes Abound on Telephone-Tax Refund Requests; IRS Offers Tips for Getting a Speedy Refund

Mistakes Abound on Telephone-Tax Refund Requests; IRS Offers Tips for Getting a Speedy Refund

IR-2007-21, Jan. 31, 2007

WASHINGTON — The Internal Revenue Service today offered taxpayers tips for requesting the telephone excise tax refund, after early tax returns show some people are making basic mistakes, others are requesting excessive refunds and many are missing out on the refunds, altogether.

“We encourage taxpayers to take a few minutes and review the details of the telephone-tax refund,” said IRS Commissioner Mark W. Everson. “A little extra time will reduce the chance for a mistake, avoid a refund delay and possibly add a few dollars onto refund checks.”

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Federal officials also authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

Early mistakes found on a sample of 2006 returns filed during January include:

  • Filling out the Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, incorrectly by failing to show a refund amount on Line 1a. Designed exclusively for requesting the telephone-tax refund, this simple form is for people who don’t need to file a regular income-tax return. Filing an incomplete form typically delays a refund and often leads to follow-up correspondence with the IRS. More than 10 million low-income people, many of them senior citizens, are expected to file this form.

  • Failing to request the telephone tax refund on a regular federal income-tax return in situations where the taxpayer appears to qualify. More than one-third of early filers did not request the telephone tax refund. This includes filers on Forms 1040, 1040A, 1040EZ, 1040NR and 1040NR-EZ. About 136 million individuals and couples are expected to file one of these forms, and most will, likely, qualify for the telephone-tax refund. Anyone who files one of these forms cannot file Form 1040EZ-T.

  • Filing duplicate requests. Usually, this involves filing both Form 1040EZ-T and a regular income-tax return. Anyone who files a regular return cannot file Form 1040EZ-T. Doing so will delay any refund for months and result in a phone call or letter from the IRS.

  • Requesting a refund that appears to be based on the entire amount of the taxpayer’s phone bills, rather than just the three-percent tax on long-distance and bundled service.

  • Requesting a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income.

The IRS is investigating potential abuses among early filers who requested large and apparently improper amounts for the telephone tax refund. The IRS will take prompt action against taxpayers who request improper refund amounts and the return preparers who help them.

The IRS wants to make it as easy as possible for anyone who paid the tax to get this special refund. If you paid the tax and haven’t filed yet, here are some tips to help you figure the refund correctly and get it quickly:

  • File electronically. Electronic-filing software flags often overlooked tax breaks and helps you figure them accurately and report them properly. If you use a professional tax preparer, ask that person to e-file your return.

  • E-file for free. If your income is $52,000 or less, use the Free File link on this Web site to connect to a private-sector company offering free e-file services.

  • Choose direct deposit. Whether you file electronically or on paper, you can get your refund at least a week sooner by having it deposited directly into your checking or savings account.

  • Consider using the standard-refund amount for the telephone-tax refund. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. You only have to fill out one line on your return, and you don’t need to present proof to the IRS.The standard amount, ranging from $30 to $60, is based on the number of exemptions you can claim on your return.

  • If you paid more than the standard amount, you may figure your refund using the actual amount of tax shown on your phone bills and other records. Base your refund request on the three-percent federal tax paid, not the total phone bill. Do not count tax paid on local-only service. You must have the phone bills or other records adequate to support the amount you are requesting. These documents should not be sent along with the refund request but should be retained in case the IRS questions the amount requested.

  • Do not file duplicate requests. If you file a regular income-tax return, do not file Form 1040EZ-T. If you want to take advantage of the earned income tax credit for low and moderate income workers, the child tax credit or other tax breaks, file a regular return and include your telephone-tax refund request on that return.

  • Stay away from tax preparers who falsely claim that many, if not most, phone customers can get hundreds of dollars or more back under this program.

  • Use the Telephone Excise Tax Refund section on the front page this Web site. Here, you can download forms, find answers to frequently-asked questions and link to participating Free File partners.

Related Items:

Tuesday, January 30, 2007

Taxpayer Advocacy Panel Members Selected

Taxpayer Advocacy Panel Members Selected

IR-2007-20, Jan. 30, 2007

WASHINGTON — The Treasury Department and the Internal Revenue Service are pleased to announce the selection of 33 new members to serve on the nationwide Taxpayer Advocacy Panel (TAP), a Federal Advisory committee charged with providing direct taxpayer input to the Internal Revenue Service.

The new panel members will join 64 returning members to round out the panel of 97 volunteers for 2007. The new members were selected from over 700 interested individuals from all over the country, who applied through an open recruitment period last spring.

TAP is a Federal Advisory committee charged with providing direct taxpayer input to the Internal Revenue Service. The volunteer members provide a taxpayer’s perspective on critical tax administration programs and help the IRS identify ways to improve customer service. Oversight and program support for the TAP is the responsibility of the Taxpayer Advocate Service, an independent organization within the IRS that helps resolve taxpayer problems and recommends changes that will prevent problems.

The mission of the panel is to listen to taxpayers, identify issues and make suggestions for improving IRS service and customer satisfaction. Panel members will work with IRS executives on priority topics – primarily those involving the Wage and Investment Division and Small Business/Self-Employed Division. Members also serve as a conduit for grassroots issues from the public and forward taxpayers’ issues and concerns to the IRS with recommendations for improvement.

"The new panel members have an important job to help make sure the IRS provides the top quality service taxpayers want and deserve“, said Nina Olson, IRS National Taxpayer Advocate and head of the Taxpayer Advocate Service. “At a time when the IRS is engaged in the process of reviewing and reforming tax procedures and how services are provided to taxpayers, input from the citizen volunteers at TAP has never been more important. We actively seek the members’ views and encourage them to have input on IRS initiatives before decisions are made.”

TAP members are U.S. citizens who volunteer to serve a three-year appointment and are expected to devote 300 to 500 hours per year to panel activities. Panel members come from all walks of life with balanced representation from all 50 states, the District of Columbia and Puerto Rico.

Taxpayers can contact their state’s representative to the Panel by calling 1-888-912-1227 or via the internet at www.improveirs.org. Taxpayers can also write to the Panel and mail correspondence to:

Taxpayer Advocacy Panel (TAP)
TA: TAP Room 1314
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

Individuals interested in volunteering to serve on the panel may submit an application via the web site www.improveirs.org during the next open recruiting period from March 19 to April 30, 2007.

Editors, please note that a list of the new panel members by state is included below.

New Taxpayer Advocacy Panel Members Selected in December 2006

Tice, Charles (Chuck) — Blytheville, Ariz.
Lee, Merijane (M J) — Portola Valley, Calif.
Lundberg, Gary — Carlsbad, Calif.
Davidson, Charles — Redding, Calif.
Stahl, Howard — Los Angeles, Calif.
Jason, Julie — Greenwich, Conn.
Paris, Mark — Panama City, Fla.
Rodriguez, Alberto — Miami, Fla.
Armstrong, Mary — Pensacola, Fla.
Cooper III, Reuben (Dale) — Atlanta, Ga.
Edwards, James (Byron) — Roswell, Ga.
Tremblay, Donna — Buford, Ga.
Freeman, Chris — Pleasant Hill, Iowa
Khan, Anne — Chicago, Ill.
Kennedy, Jeff L. — Louisville, Ky.
Fulkrod, Steve — Bel Air, Md.
Wright, Kenneth K. — Ashland, Mo.
Shah, Rajiv — Columbia, Mo.
Hutchinson, Carolyn — Fletcher, N.C.
Lester, Judy — Chapel Hill, N.C.
Widmer, Harris — Fargo, N.D.
Chapman, Benson — Wayne, N.J.
Criel, Laura — Albuquerque, N.M.
Whiteside, Deidra — Buffalo, N.Y.
Chen, Betty — New York, N.Y.
Wernz, Stan — Cincinnati, Ohio
Bensen, Milissa — Hermiston, Ore.
Brown, Kimberly — Blakeslee, Pa.
Bryant, Pat — Millington, Tenn.
Bell, S. Kay — Austin, Texas
Bryant, Michael — Oakton, Va.
Yaeger, William — Alexandria, Va.
Colombo, Paul — Colchester, Vt.

Monday, January 29, 2007

New State Sales Tax Calculator Debuts on IRS.gov

New State Sales Tax Calculator Debuts on IRS.gov

IR-2007-19, Jan. 29, 2007

WASHINGTON — The Internal Revenue Service is providing a new online tool to help individual taxpayers determine whether they might benefit by electing to deduct their state and local general sales taxes.

“The Sales Tax Calculator is another interactive tool on the IRS.gov web site designed to help make it easier for taxpayers to figure their taxes,” said IRS Commissioner Mark W. Everson.

Taxpayers who itemize deductions on Schedule A of the Form 1040 in 2006 have the option of deducting the amount of state and local sales taxes paid instead of deducting their state and local income taxes paid. Taxpayers cannot take a deduction for both sales and income taxes.

New tax law enacted in late December reinstated the optional deduction for state and local sales taxes. Because of this late enactment date, the IRS previously announced that it would not begin processing returns claiming the sales tax deduction until Feb. 3.

To use the Sales Tax Calculator, taxpayers input their adjusted gross income, number of exemptions and zip code. The IRS estimates most taxpayers will get an answer in less than five minutes using the new tool.

The calculator is anonymous. Taxpayers do not need to enter their name, Social Security number or any other identifying information. The calculator is another in a series of steps the IRS is taking to reduce taxpayer burden.

As an alternate to the online sales tax calculator, taxpayers can use the worksheet in Publication 600, State and Local General Sales Tax, posted on IRS.gov and mailed in early January to about six million individuals who received the Form 1040 tax package.

To calculate what their sales tax deduction would be, taxpayers can use either the actual amounts paid or use sales tax tables that allow them to factor in the exact sales taxes paid on certain specified items, such as a car, boat or material to build a house.

To find this tool, enter Sales Tax Calculator into the search box on this Web site.

See related item: Sales Tax Calculator

Friday, January 26, 2007

IRS.gov Offers Online Alternative Minimum Tax Assistance

IRS.gov Offers Online Alternative Minimum Tax Assistance

IR-2007-18, Jan. 26, 2007

WASHINGTON — The Internal Revenue Service announced that it has updated its online tool to help taxpayers determine whether they may owe the Alternative Minimum Tax (AMT). Most taxpayers can enter their data and get an answer in five to 10 minutes using this Internet-based calculator, available at on this Web site.

“Nobody likes the AMT. But this tool helps people learn quickly whether they’re going to be paying this tax,” said IRS Commissioner Mark W. Everson. “We also remind taxpayers that AMT calculations are automatic when you use e-file rather than filing a paper return.”

The online AMT Assistant is an automated version of the Worksheet to see if you should fill in Form 6251, Alternative Minimum Tax. The worksheet, contained in the Form 1040 Instruction Booklet, helps determine whether a taxpayer may be subject to AMT. The IRS projects that most taxpayers using the online AMT Assistant will find that the AMT does not apply to them.

The AMT Assistant is aimed at individual taxpayers and can be used by individuals, tax practitioners and community or public service organizations. All entries are anonymous. Taxpayers filing paper returns benefit the most from the AMT Assistant since electronic filing software generally computes AMT liability automatically.

By entering “AMT Assistant” in the IRS.gov search box, taxpayers can easily find the tool. To use the AMT Assistant, taxpayers must complete a draft Form 1040 through line 44 and have that information at hand to use the AMT Assistant, which is one of several online tools available on IRS.gov.

Related Item: AMT Assistant

Redesigned Form 940 Has Many Improvements for Tax Year 2006

Redesigned Form 940 Has Many Improvements for Tax Year 2006

IR-2007-17, Jan. 26, 2007

WASHINGTON — Payroll professionals and business owners who file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for 2006, due by Jan. 31, will notice several improvements in the form and instructions. The IRS has redesigned Form 940 to be more user-friendly, reducing the burden for more than one million filers.

In May 2004, a team led by the IRS office of Taxpayer Burden Reduction began the process of redesigning Form 940. IRS employment tax experts worked with representatives from other federal and state agencies, gathering input from internal and external stakeholders to create a plain language form that is logical, easy to follow, and compatible with optical scanning.

The new Form 940 incorporates the advantages of Form 940-EZ (discontinued for tax year 2006) into a simplified form for all filers. Improvements include:

  • A logical sequence from the taxpayer’s point of view

  • Eight separate parts with visual cues, breaking up the task into smaller steps

  • A new Schedule A for multi-state employers or credit reduction situations

  • Check boxes instead of “A, B, C” questions

The IRS is committed to reducing unnecessary taxpayer burden and welcomes input from tax and payroll professionals, business owners and the general public on opportunities to make it easier to comply with the tax laws. More information can be found in Form 13285A, Reducing Tax Burden on America's Taxpayers, and at the link below for the Office of Taxpayer Burden Reduction.

Related Items:

Thursday, January 25, 2007

Some Telephone Tax Refund Requests May Be Too High; IRS Will Deny Improper Requests

Some Telephone Tax Refund Requests May Be Too High; IRS Will Deny Improper Requests

IR-2007-16, Jan. 25, 2007

WASHINGTON — The Internal Revenue Service said today that early filings show some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. The IRS is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts and the return preparers who help them.

“While the vast majority of taxpayers are claiming the telephone tax refund correctly, we are seeing some clear abuse involving overstated refund requests,” said IRS Commissioner Mark W. Everson. “People requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted.”

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Federal officials also authorized a one-time refund of tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

The IRS checked a sample of returns filed through mid-January and found that some individual taxpayers requested telephone tax refunds that appear to be excessive:

  • In some cases, taxpayers appear to be requesting a refund of the entire amount of their phone bills, rather than just the three-percent tax on long-distance and bundled service that they are entitled to.

  • Some individuals are making requests for thousands of dollars, indicating that they had phone bills topping $100,000 – an amount exceeding their income.

  • Some tax preparers are helping their clients file apparently improper requests.

“If we find inappropriate refund claims, we will aggressively pursue tax preparers and promoters who make the improper requests, and we will contact individual taxpayers in egregious situations,” Everson said. “Audit letters will be sent out soon and, when appropriate, our investigators will visit tax preparers who have been preparing questionable telephone tax refunds.”

The IRS is making it as easy as possible for taxpayers to get this special refund. Research and contacts with telephone service providers indicated that standard refund amounts, ranging from $30 to $60, based on the number of exemptions claimed on their tax return, would approximate the eligible amount for most taxpayers.

Taxpayers do not need to present proof for requesting the standard amount. Alternatively, they can figure the refund using the actual amount of tax paid, based on their phone bills and other records. These documents should not be sent along with the refund request but should be retained in case the IRS questions the amount requested.

The IRS reminds taxpayers that the best way to avoid mistakes and get a refund quickly is to file a return electronically and have the refund deposited directly into a checking or savings account. Electronic-filing software helps taxpayers figure tax breaks, such as the telephone tax refund, accurately and report them properly. Free e-file services are available to low and moderate-income taxpayers (incomes of $52,000 or less) through the Free File link on this Web site.

Another way to avoid mistakes is to stay away from unscrupulous promoters and tax preparers who make false claims about the telephone tax refund and suggest that many, if not most, phone customers can get hundreds of dollars or more back under this program. The best and most reliable information on this unique refund can be found in the Telephone Excise Tax Refund section of this Web site. Here, taxpayers can download forms, find answers to frequently-asked questions and link to participating private-sector Free File partners offering free electronic-filing services.

Related Item:

Wednesday, January 24, 2007

Taxpayers Have Until April 17 to File and Pay

Taxpayers Have Until April 17 to File and Pay

IR-2007-15, Jan. 24, 2007

WASHINGTON — Taxpayers across the nation will have until Tuesday, April 17, 2007, to file their 2006 returns and pay any taxes due, the Internal Revenue Service announced today.

Taxpayers will have extra time to file and pay because April 15 falls on a Sunday in 2007, and the following day, Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia.

“This year, taxpayers have additional time to file and pay beyond the traditional April 15 deadline,” said IRS Commissioner Mark W. Everson. “As we always do, we encourage taxpayers to get an early start on their taxes to make sure they have plenty of time to accurately prepare their return.”

This means the entire country has an April 17 deadline. Previously, the April 17 deadline applied just to individuals in the District of Columbia and six eastern states who are served by an IRS processing facility in Massachusetts, where Patriots Day will be observed on April 16.

The April 17, 2007 deadline will apply to any of the following:

  • 2006 federal individual income tax returns, whether filed electronically or on paper.

  • Requests for an automatic six-month tax-filing extension, whether submitted electronically or on Form 4868.

  • Tax year 2006 balance due payments, whether made electronically (direct debit or credit card) or by check.

  • Tax-year 2006 contributions to a Roth or traditional IRA.

  • Individual estimated tax payments for the first quarter of 2007, whether made electronically or by check.

  • Individual refund claims for tax year 2003, where the regular three-year statute of limitations is expiring.

Other tax-filing and payment requirements affected by this change are described in IRS Publication 509, Tax Calendars for 2007, available on this Web site.

Most taxpayers will not have to change their plans in response to this announcement. Three out of four individual filers get refunds. Typically, returns claiming refunds are filed early in the tax season.

By law, filing and payment deadlines that fall on a Saturday, Sunday or legal holiday are timely satisfied if met on the next business day. Under a federal statute enacted decades ago, holidays observed in the District of Columbia have impact nationwide on tax issues, not just in D.C. Under recently-enacted city legislation, April 16 is a holiday in the District of Columbia. Officials recently became aware of the intersection of the national filing day and the local observance of the new Emancipation Day holiday after most forms and publications for the current tax filing season went to print.

Even with the extra time, taxpayers can skip the last-minute rush and avoid needless mistakes by filing early, taking advantage of the speed and convenience of electronic filing, choosing direct deposit for any refunds and paying any taxes due by direct debit or credit card. IRS.gov has further details on electronic filing and payment options and links to companies providing these services.

Related Items:

IRS, Telemundo Host Tax Information Program for Spanish-Speaking Taxpayers

IRS, Telemundo Host Tax Information Program for Spanish-Speaking Taxpayers

IR-2007-14, Jan. 24, 2007

WASHINGTON — The Internal Revenue Service is joining national television network Telemundo in a special one-hour tax program for Spanish-speaking taxpayers on Sunday, Jan. 28. The program, “Los Impuestos y Usted” (“Taxes and You”), will air at 3:30 p.m. Eastern and Pacific Time, and at 2:30 p.m. Central and Mountain Time.

“Los Impuestos y Usted” will focus on a variety of tax issues, including the Earned Income Tax Credit (EITC) for low-income taxpayers, electronic filing (IRS e-file), Free File and tips on how to choose a tax preparer. In addition, the program will explain the changes to the tax laws such as split refunds and the federal telephone excise tax. IRS experts also will discuss taxpayers’ rights and how to obtain help with tax questions.

Mónica Noguera, host for many of Telemundo’s special programs, will present the IRS program, which features in-studio interviews with IRS tax experts.

Information about the IRS is available in Spanish online at http://www.irs.gov/espanol or toll-free by telephone at 1-800-829-1040, extension 8.

Monday, January 22, 2007

New Internet-Based Workshop Helps Tax Exempt Organizations Remain in Compliance

New Internet-Based Workshop Helps Tax Exempt Organizations Remain in Compliance

IR-2007-13, Jan. 22, 2007

WASHINGTON – The Internal Revenue Service has launched a new Internet-based version of its popular Exempt Organizations Workshop covering tax compliance issues confronted by small and mid-sized tax-exempt organizations, including charities and churches.

The target audience for the free online workshop, Stay Exempt – Tax Basics for 501(c)(3)s, is organizations that have no tax experts on staff or have no or limited contact with outside advisors on tax compliance issues.

“The Exempt Organizations division has offered face-to-face workshops for small and mid-sized organizations since 2001,” said Lois G. Lerner, Exempt Organizations director. “These have been remarkably popular and have played an important role in our effort to increase compliance with the law through effective outreach and education.”

“However because of the cost and time involved in producing the live workshops, we can offer only a few each year in major cities. With this new online program, anyone, anywhere can access a ‘virtual workshop’ whenever it’s convenient for them,” Lerner added.

The workshop consists of five interactive modules on tax compliance topics:

  • Tax-Exempt Status – How can you keep your 501(c)(3) exempt?
  • Unrelated Business Income – Does your organization generate taxable income?
  • Employment Issues – How should you treat your workers for tax purposes?
  • Form 990 – Would you like to file an error-free return?
  • Required Disclosures – To whom do you have to show your records?

Each module contains learning objectives as well as interactive exercises to keep the sessions lively. Users can complete the modules in any order and repeat them as many times as they like. Users also will find dozens of links to IRS forms and publications that provide details about the topics in the modules. The IRS Web site does not require registration and its visitors will remain anonymous. Comments on ways to improve the workshop are encouraged.

Thursday, January 18, 2007

IRS Selects New Members for Information Reporting Program Advisory Committee

IRS Selects New Members for Information Reporting Program Advisory Committee

IR-2007-12, Jan. 18, 2007

WASHINGTON — The Internal Revenue Service has selected eight new members for the Information Reporting Program Advisory Committee (IRPAC). The appointees join 15 returning members who are in the second or third year of their three-year terms.

The eight new members appointed to serve on the committee are:

  • Richard Hollingsworth, a Manager of Tax Information Returns, H&R Block Financial Advisors, Inc., Detroit, Mich.
  • Nadine Hughes, Vice President, Agency Services, CompuPay, Inc., Miramar, Fla.
  • Jon Lakritz, Vice President, National Financial Services, LLC, Jersey City, N.J.
  • Timothy McCutcheon, President, Fort William, LLC, Milwaukee, Wis.
  • Maria Murphy, Director, PricewaterhouseCoopers LLP, Washington, D.C.
  • Suzanne Sullivan, Senior Vice-President and Senior Financial Manager, Bank of America, Providence, R.I.
  • Ron Whitney, CEO, Barter Network, Inc., Chadds Ford, Pa.
  • Ralph Zerbonia, Tax Principal, UHY Advisors, Inc., Southfield, Mich.

The committee will hold its orientation meeting on Jan. 24-25, 2007.

The Information Reporting Program Advisory Committee was established in 1991 and focuses on information reporting issues. The committee’s purpose is to provide an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public.

Links:

Tuesday, January 16, 2007

Improved, Expanded Free File Program Opens Today for 95 Million Taxpayers

Improved, Expanded Free File Program Opens Today for 95 Million Taxpayers


IR-2007-11, Jan. 16, 2007

WASHINGTON — The Internal Revenue Service and its private-sector partners today announced the opening of this year's Free File program with a series of improvements and changes to help taxpayers. The free tax preparation and free electronic filing initiative begins its fifth year with more consumer-friendly features and expanded services for Spanish-speaking taxpayers.

Seventy percent of the nation’s taxpayers — 95 million Americans — qualify for Free File. This year, up to 20 Free File Alliance companies will participate in the program run by the IRS and the Free File Alliance, a consortium of tax preparation software companies. The program is available only through IRS.gov.

“The Free File program has significant changes this year that make it an even better deal for taxpayers,” said IRS Commissioner Mark W. Everson. “A huge part of the taxpayer public can use these free services. Taxpayers should review the Free File offerings and see which one works best for them.”

Free File Alliance Executive Director Tim Hugo said, "This year, 95 million Americans will be eligible to participate in a Free File program that has made dramatic improvements for the taxpaying public. The Free File program is a public-private partnership at its best."

A new agreement reached last month between the IRS and the Free File Alliance means enhanced services for taxpayers this year. Among the changes and features of this year’s program:

  • Seventy percent of the nation’s taxpayers — those with an adjusted gross income of $52,000 or less — are eligible for Free File. Each company sets its own criteria for who can use the service.

  • Taxpayers will be able to use Free File to request the Telephone Excise Tax Refund. Taxpayers can either request the standard amount, which ranges from $30-$60, or the actual amount. Some alliance members will provide free access to Form 1040EZ-T for those people who have no legal obligation to file a tax return, but who can request the one-time telephone excise tax refund. Some alliance members also will offer free access to Form 8913 to request the actual amount.

  • Two companies will offer Free File in Spanish.

  • Participants will no longer offer refund anticipation loans (RALs) and other ancillary products.

  • Some Alliance members are offering the state return for free. All Alliance members’ Web sites display whether state online tax preparation and filing services are available and the associated fees, if any.

  • Taxpayers can use Free File to file a Form 4868, Application for Automatic Extension of Time to File.

The Free File Alliance selects its own membership, and all members must meet the IRS’ high standards for security and privacy. The IRS does not endorse any Free File Alliance company. While the IRS manages the content of the Free File pages accessible on IRS.gov, it does not retain any taxpayer information entered on the Free File site.

More than 3.9 million taxpayers used Free File last year. Free File debuted in 2003 with nearly 2.8 million users.

Taxpayers consistently give high marks to Free File in satisfaction surveys. According to Russell Research, a market research firm contracted by the IRS, 94 percent said they intend to use Free File again this year, 96 percent said they found Free File very easy or somewhat easy to use and 97 percent said they would recommend Free File to others. Convenience, not the free cost, was the most appealing factor of Free File.

“This level of public satisfaction with Free File is just astounding,” Everson said. “This innovative program provides real value to the taxpayers. Taxpayers will find we’ve made a great program even better this year.”

Related Items:

Friday, January 12, 2007

IRS E-File Opens for 2007 Filing Season

IRS E-File Opens for 2007 Filing Season

IR-2007-10, Jan. 12, 2007

WASHINGTON — Taxpayers may file their 2006 tax returns electronically beginning today as the Internal Revenue Service opens the e-file program following a record-setting year.

“E-file is the fastest, safest and most accurate way to file a tax return,” said IRS Commissioner Mark W. Everson. “People will get their refunds faster through e-file. E-file greatly reduces the chances for making an error compared to filing a paper 1040.”

Taxpayers who use IRS e-file and who choose direct deposit can receive their refund in half the time. Also, tax return information is protected through encryption, and an e-filed tax return is far more accurate than a paper return. Taxpayers receive an acknowledgement within 48 hours that the IRS accepted the return.

IRS e-file surpassed a record in 2006 when more than 73 million tax returns, almost 54 percent of all returns, were filed electronically.

IRS e-file allows taxpayers to file their return and pay later should they owe taxes, and it allows taxpayers to file both the federal and most state returns at the same time. The IRS began the e-file program in 1986 as a pilot project in three cities: Cincinnati, Phoenix and Raleigh-Durham, N.C. That year, there were 25,000 tax returns filed electronically. The e-file program expanded nationwide in 1990 and 4.2 million tax returns were filed. IRS e-file has undergone tremendous growth each year.

Taxpayers may use IRS e-file through their tax preparer, over-the-counter software or Internet programs. The IRS does not charge for e-file, but some tax preparers and software manufactures may charge a fee.

IRS Free File, a partnership between the IRS and some software manufacturers, will offer free tax preparation and e-filing for taxpayers with an Adjusted Gross Income of $52,000 or less. This AGI accounts for 70 percent of all taxpayers or 95 million taxpayers. This year the program features an agreement by private sector partners to remove Refund Anticipation Loans (RALs) as well as other ancillary offerings from the program. Free File will be available later this month.

Feb. 3 Start Date for Extenders Provisions

The IRS plans a Feb. 3 start date for processing tax returns that claim key tax provisions enacted in December. Both paper and electronic returns will not be processed if submitted before Feb. 3. Tax returns filed on paper will be accepted but will not be processed until after IRS processing systems are updated on Feb. 3.

The IRS also noted that it will begin processing both e-file and paper tax returns that include claims for key “extender” provisions, including deductions for state and local sales taxes, higher education tuition and fees, and educator expenses on Feb. 3. Any other tax returns for individuals that do not claim an extender provision can be filed as normal this month.

Tax returns filed on paper with these extender provisions will be accepted but will not be processed until after IRS processing systems are updated on Feb. 3.

The IRS emphasized that using IRS e-file is the most accurate to file any return and the quickest way for taxpayers to receive their refunds. Tax software will be updated so taxpayers can easily claim the extender provisions.

Related Items:

First Bilateral Advance Pricing Agreement Concluded Between the United States and the Peoples Republic of China

First Bilateral Advance Pricing Agreement Concluded Between the United States and the Peoples Republic of China

IR-2007-09, Jan. 12, 2007

Washington — The Internal Revenue Service today announced the completion of the first bilateral advance pricing agreement (“APA”) between the U.S. and the People’s Republic of China.

The agreement involves Wal-Mart Stores, Inc. The parties, including Wal-Mart, worked quickly and constructively to establish a mutual agreement process that will benefit future bilateral APAs between the two countries.

“We’re working closely with China as they develop their tax administration system,” said IRS Commissioner Mark W. Everson. “This is an important event, and I’m pleased we’ve been able to reach this agreement with the Chinese tax authority and Wal-Mart.”

The IRS APA Program provides a way to resolve transfer pricing issues before they arise during an audit. The program enables the taxpayer and the IRS to work together to resolve potential double taxation disputes under U.S. tax law and relevant income tax treaties. APAs lessen the burden of compliance by giving taxpayers greater certainty regarding their transfer pricing methods.

The APA process increases the efficiency of tax administration by encouraging taxpayers to come forward and present to the IRS all the facts relevant to a proper transfer pricing analysis and to work towards a mutual agreement in a spirit of openness and cooperation.

In 2006, there were 82 APAs executed, of which 40 were bilateral agreements with other tax treaty countries.

Thursday, January 11, 2007

2007 Nissan Altima Certified as Qualified Hybrid Vehicle

2007 Nissan Altima Certified as Qualified Hybrid Vehicle

IR-2007-08, Jan. 11, 2007

WASHINGTON — The Internal Revenue Service has acknowledged the certification by Nissan North America, Inc., that its 2007 Nissan Altima Hybrid vehicle meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.

The credit amount for the hybrid vehicle certification of the 2007 Nissan Altima Hybrid is $2,350.

Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

See related item: Hybrid Cars and Alternative Vehicles

Wednesday, January 10, 2007

IRS, Treasury Issue Guidance on New Distribution Provisions of the Pension Protection Act

IRS, Treasury Issue Guidance on New Distribution Provisions of the Pension Protection Act

IR-2007-7, Jan. 10, 2007

WASHINGTON — The Treasury Department and the IRS issued a notice today providing extensive guidance on several Pension Protection Act rules relating to distributions from tax-qualified retirement plans.

The guidance addresses many questions on PPA provisions, including:

  • interest rate assumptions for lump sum distributions

  • hardship distributions from a 401(k) and similar plans

  • early distributions from qualified plans to terminated public safety employees

  • rollovers from qualified plans to IRAs for non-spouse beneficiaries

  • distributions to pay for health insurance for retired public safety officers

  • earlier vesting of certain employer contributions

  • new rules for the notice and consent period for distributions

The notice also clarifies several issues concerning the provision permitting IRA owners age 70 ½ or older to directly transfer tax-free, up to $100,000 per year to an eligible charity. For example, a check from an IRA made payable to an eligible charity but delivered by the IRA holder still qualifies for tax-free treatment. IRAs held on behalf of beneficiaries, as well as IRAs held by the original owners, are eligible to use this provision. Additionally, the $100,000 annual limit applies separately for each spouse of a married couple. If both spouses have IRAs and are at least age 70 ½, the couple can transfer a combined total of $200,000.

Related Item: Notice 2007-7

IRS Chief Counsel Revitalizes Professor-in-Residence Program

IRS Chief Counsel Revitalizes Professor-in-Residence Program

IR-2007-06, Jan. 10, 2007

WASHINGTON — The Internal Revenue Service Office of Chief Counsel is reviving its Professor-in-Residence program.

Dormant since the late 1980s, the Professor-in-Residence program provides some of the nation’s top legal academicians the opportunity to contribute to the development of legal tax policy and administration. Reporting directly to IRS Chief Counsel Donald L. Korb, the Professor in Residence provides advice and assistance on a wide array of legal issues within the scope of his or her expertise.

Korb has selected Calvin H. Johnson, the Andrews & Kurth Centennial Professor of Law at the University of Texas Law School, as the 2007 Professor in Residence for the IRS Office of Chief Counsel.

A graduate of Columbia College and Stanford Law School, Johnson is a nationally known scholar on tax law who has taught at the University of Texas Law School for more than 25 years. He has previously served in a number of advisory roles, including adviser to the Joint Committee on Taxation, Guest Scholar at The Brookings Institution, and member of the IRS Commissioner’s Advisory Group.

Johnson has authored numerous articles on tax and tax policy, including recent works on corporate tax shelters, stock options, depreciation and corporate integration.

He will begin his tenure with the IRS Office of Chief Counsel this month.

Link:

IRS, Hollywood Foreign Press Association Reach Agreement On Gift Baskets

IRS, Hollywood Foreign Press Association Reach Agreement On Gift Baskets


IR-2007-05, Jan. 10, 2007

WASHINGTON — The Internal Revenue Service announced today another milestone in its outreach campaign to the entertainment industry regarding the taxability of gift bags and promotional items.

The Hollywood Foreign Press Association and the IRS reached a mutually satisfactory agreement that will resolve outstanding tax responsibilities with respect to Golden Globe Awards presenter gift baskets. The Hollywood Foreign Press Association (HFPA) voluntarily approached the IRS last year seeking to clarify the tax issues surrounding the gift baskets, as well as to ensure that any obligations for the prior years were met.

Under the closing agreement, the HFPA and the IRS have settled the tax obligations with respect to gifts given through 2005. Recipients of 2006 gift boxes will be issued appropriate informational tax forms by the HFPA and will be responsible for satisfying their income tax obligations.

Last year, the IRS started an outreach campaign aimed at the entertainment industry. This effort is focused on distribution of celebrity gift bags and goodie bags in conjunction with appearances by the stars at award shows and other gatherings. Such bags can include luxury trips, jewelry and electronics. Dozens of the award shows take place each year.

“The fact this gift bag practice grew so quickly is stranger than fiction,” said IRS Commissioner Mark W. Everson. “We’re happy the Hollywood Foreign Press Association stepped forward to resolve this issue.”

“We are pleased to have reached an agreement with the IRS which resolves all income tax obligations on the part of our presenters,” said Philip Berk, HFPA President. Last September, the HFPA voted to discontinue the practice of thanking presenters with presenter boxes.

Since August, the IRS has contacted entertainment industry groups and others to focus attention on tax guidelines for gift bags and other promotional items. The effort is concentrated on two main areas:

  • Reporting compliance by the stars and other recipients receiving the items.
  • Completion of Form 1099s as appropriate by those providing the items to the stars and other recipients.

This outreach provides an opportunity for taxpayers, businesses and tax professionals to better understand their tax obligations as it relates to these luxury goods and services and the associated tax implications. The outreach effort is also aimed at keeping entertainers, organizations and others in this area in compliance with the tax law.

Tuesday, January 9, 2007

National Taxpayer Advocate Releases 2006 Report to Congress: Stresses Need for Action on AMT and Tax Gap; Focuses on IRS Collection and Transparency

National Taxpayer Advocate Releases 2006 Report to Congress: Stresses Need for Action on AMT and Tax Gap; Focuses on IRS Collection and Transparency

IR-2007-04, Jan. 9, 2007

WASHINGTON — National Taxpayer Advocate Nina E. Olson today released her annual report to Congress, designating the alternative minimum tax for individuals (AMT) and the federal tax gap as the most serious problems facing taxpayers. The report also focuses extensively on concerns about IRS collection policies and the transparency of IRS information to the taxpaying public.

The AMT was designated as the most serious problem in the Advocate’s report both in its own right and because it symbolizes the broader problem of tax-law complexity. The tax gap remains a high priority because noncompliance by some taxpayers requires every compliant taxpayer to pay, on average, more than $2,200 in extra tax each year to subsidize that noncompliance.

“With a new Congress convening, I am pleased to see these issues have been identified as priorities by the leadership of the House and Senate tax-writing committees,” Olson said. “Simplifying the tax code, particularly by repealing the AMT, and reducing the inequities caused by the tax gap will go a long way to helping America’s taxpayers.”

Concerns About IRS Collection Policies

By statute, the National Taxpayer Advocate each year is required to identify at least 20 of the most serious problems encountered by taxpayers. Seven of the most serious problems discussed in this year’s report relate to IRS collection policies. “Rather than intervening early and making personal contact with taxpayers,” Olson said, “the IRS often waits until taxpayers’ debts become so large that they warrant the intervention of much more expensive IRS field collection personnel.”

The report noted the following:

  • The lack of early, meaningful interventions by the IRS on delinquent tax accounts contributes to long-term financial problems for many taxpayers and costs the government billions of dollars in lost revenue. Taxpayers are harmed because many taxpayers could pay off all or most of the original debt if contacted promptly but are unable to pay off the debt by the time the IRS personally contacts them after interest and penalties have accrued. The government is harmed because the IRS collects only about 15 cents on the dollar on tax debts that are two years old and virtually nothing on tax debts that are older than three years.

  • In FY 2006, the IRS reported more delinquent tax dollars as “currently not collectible” (CNC) than it actually collected on active balance due accounts, installment agreement accounts, and offers in compromise combined. Once accounts are designated with CNC status, IRS data for the preceding six years show the agency collected less than 2 percent of the amounts due.

  • The IRS is failing to make adequate use of collection alternatives. While some may view collection alternatives as a “give away” of tax dollars, an analysis of the data suggests they often are an excellent deal for both taxpayers and the government. For example, when the IRS accepts an “offer in compromise,” taxpayers are able to clear up their debts and make a fresh start. The government generally collects far more from offers than it would collect if the accounts were placed into CNC status, and equally important, the taxpayer is required to remain in compliance for the succeeding five years, or the original tax debt will be reinstated in full. About 80 percent of taxpayers with accepted offers remain in full compliance during this 5-year period.

“Virtually any debt-collection operation will acknowledge that as delinquent accounts receivable age, their collection potential declines,” Olson said. “Yet it appears that as IRS collection cases age, IRS policies and procedures make it very difficult for taxpayers to obtain reasonable collection alternatives, with the result that the IRS often collects nothing.”

  • The IRS uses automated processes, such as the Federal Payment Levy Program (FPLP), to impose levies against taxpayers who owe tax debts. However, about 84 percent of FPLP levies historically have been imposed against Social Security payments to the elderly or disabled, many of whom are fully dependent on these benefits to cover their basic living expenses. Despite the National Taxpayer Advocate’s repeated urging, the IRS does not have screens in place to protect vulnerable, low income taxpayers from these automated levies.

  • The report raises numerous concerns about the outsourcing of tax collection that began in September 2006. The report notes that one of the premises on which the program was based was a “level playing field” — meaning that rules that apply to the IRS and IRS employees would also apply to private collection agencies (PCAs) and PCA employees. In practice, the program has deviated from this “level playing field,” Olson said. For example, the report notes the procedures that IRS employees follow when collecting tax debts are set forth in the Internal Revenue Manual and are available to the public. By contrast, PCAs maintain operational plans and calling scripts that describe such things as psychological techniques to coax debtors into paying, and these scripts are considered “proprietary information” that Olson’s office was not permitted to disclose. The report’s analysis of the costs and benefits of the private debt collection initiative leads Olson to conclude that the revenue benefits of
    the program are limited and the potential for taxpayer rights violations is significant. She recommends that Congress repeal the IRS’s authority to outsource tax collection.
Concerns about IRS Transparency

In her preface, Olson states that the primary theme of this year’s report is transparency and the important role it plays in tax administration. The report notes that the Freedom of Information Act (FOIA) requires the IRS to make certain procedures and guidance available to the public. The report credits the IRS with improving its compliance with FOIA requirements in recent years but concludes that further improvements are needed. “It goes without saying that the IRS needs to comply with the requirements of the law,” Olson said. “But we believe FOIA represents a floor on transparency, not a ceiling. Transparency benefits taxpayers and the IRS. It benefits taxpayers because they are entitled to know what legal standards and procedures the IRS is applying, and it benefits the IRS because we can improve our procedures when we receive meaningful feedback from informed taxpayers and practitioners,” she said.

Legislative Recommendations

Among 15 legislative recommendations, the report proposes that Congress revise its budget procedures to improve IRS funding decisions. The report states the current federal budget procedures treat the IRS as a classic government-spending program and pit the IRS dollar-for-dollar against many other federal programs for resources. The report points out, however, that the IRS is effectively the accounts receivable department of the federal government, collecting $2.24 trillion a year on a budget of $10.6 billion — a 210:1 return on investment. Studies show that each additional dollar appropriated for the IRS would generate far more than a dollar in additional federal revenue. The report suggests a set of guidelines for making IRS funding decisions that recognizes the IRS’s unique role as the revenue generator for the federal government and seeks to maximize tax compliance, especially voluntary tax compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.

Among other legislative recommendations, the report recommends that Congress make certain changes to improve the uniform definition of a qualifying child, eliminate or simplify income “phase-outs,” and increase the annual gross receipts threshold that triggers a return-filing obligation for tax-exempt organizations from $25,000 to $50,000.

Concerns about Taxpayer Service

The report also presents Olson’s perspective on a “Taxpayer Assistance Blueprint” the IRS has been preparing, pursuant to a congressional directive, in conjunction with her office and the IRS Oversight Board. Olson calls this ongoing project to develop a five-year strategic plan for taxpayer service a “bright spot” in tax administration this year. “With the publication of the Taxpayer Assistance Blueprint, the IRS will make available its first strategic plan for delivering taxpayer service, one that is based on current research and envisions further studies and refinements,” Olson writes.

However, Olson is concerned that the IRS appears inclined to shift significant responsibility for meeting certain taxpayer service needs to third-party "partners," such as Volunteer Income Tax Assistance (VITA) sites and other community-based organizations, in a manner that exceeds the capacity of these organizations to handle and that constitutes an abdication of certain core functions that the government itself should continue to perform.

The Advocate’s report contains a second volume that describes the results of two research studies the Office of the Taxpayer Advocate has conducted — one on taxpayer needs and preferences for taxpayer service and one on factors that drive taxpayers into the hands of the Taxpayer Advocate Service (referred to as the “downstream consequences” study). The first study draws on several recent IRS research initiatives to identify taxpayers’ needs for assistance, their preferences and willingness to use various IRS services, and barriers to taxpayers’ effective use of IRS services. The study’s conclusions affect not only the IRS current strategies for providing taxpayer service but also any efforts to eliminate services that taxpayers need in order to meet their tax obligations. The second study will enable the Taxpayer Advocate Service to more accurately project its future workload as well as identify trends and emerging problems for taxpayers.

About the Taxpayer Advocate Service

The Taxpayer Advocate Service is an independent organization within the IRS that assists taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Taxpayers may be eligible for assistance if:

  • They are experiencing economic harm or significant cost (including fees for professional representation);

  • They have experienced a delay of more than 30 days to resolve a tax issue; or

  • They have not received a response or resolution to their problem by the date promised by the IRS.

The service is free, confidential, tailored to meet taxpayers’ needs, and available for businesses as well as individuals. There is at least one local taxpayer advocate in each state, the District of Columbia and Puerto Rico.

Taxpayers can contact the Taxpayer Advocate Service by calling a toll-free case intake line at 1-877-777-4778 or TTY/TTD 1-800-829-4059 to determine whether they are eligible for assistance. They can also call or write to their local taxpayer advocate, whose phone number and address are listed in the local telephone directory and in Publication 1546, The Taxpayer Advocate Service of the IRS - How to Get Help With Unresolved Tax Problems, which is available on thisWeb site.

Related Items:

Monday, January 8, 2007

IRS Plans Feb. 3 Start Date for Processing Extender Claims

IRS Plans Feb. 3 Start Date for Processing Extender Claims

Update: As of 2/3/2007, the IRS Is Processing Extender Claims.

IR-2007-03, Jan. 8, 2007

Washington — The Internal Revenue Service plans a Feb. 3 start date for processing tax returns that claim key tax provisions enacted in December.

The IRS announced today that it will begin processing both e-file and paper tax returns on Feb. 3 that include claims for the major “extender” provisions, including deductions for state and local sales taxes, higher education tuition and fees, and educator expenses. Any other tax returns for individuals that do not claim the extender provision can be filed as normal this month.

The Feb. 3 date allows the IRS enough time to update its systems to accommodate the tax law changes without disrupting other operations tied to the tax filing season.

“The vast majority of taxpayers will not be affected by these changes, and they will not notice any difference as they start filing tax returns this month,” IRS Commissioner Mark W. Everson said. “The IRS urges people claiming the extender deductions to file electronically to reduce the chance of making an error.”

Based on filings last year, about 930,000 tax returns claimed any of the three main extender provisions by Feb. 1. Overall, the IRS expects to process about 136 million individual tax returns this year.

The IRS is taking a number of steps to help taxpayers get the information they need to take advantage of the extended deductions and tax law provisions enacted after IRS forms went to print.

Taxpayers can visit IRS.gov for updated information on the late legislation. Publication 600, State and Local General Sales Tax, is posted on IRS.gov. This month, the IRS is also conducting a special mailing of Publication 600, which will include the state and local sales tax tables and instructions for claiming the sales tax deduction on Schedule A (Form 1040), to 6 million taxpayers who have received the 2006 Form 1040 package in the mail.

The IRS reminded taxpayers that both paper and electronic returns will not be processed if submitted before Feb. 3. Tax returns filed on paper will be accepted but will not be processed until after IRS processing systems are updated on Feb. 3.
The IRS emphasized that using IRS e-file is the most accurate to file any return and the quickest way for taxpayers to receive their refunds. Tax software will be updated so taxpayers can easily claim the extender provisions.

“As we always do, we encourage taxpayers who think they may claim these deductions to file electronically,” Everson said. “They will get their refunds faster through e-file. Even more importantly, e-file will greatly reduce the chances for making an error compared to claiming the deductions on the paper 1040.”

For people using a paper 1040, several special steps must be taken. Taxpayers must use existing lines on the current Form 1040 and other tax documents to claim the three major extenders provisions. The key forms (Forms 1040, 1040A, Schedule A&B, and instructions) went to print in early November and reflected the law in effect at that time. The instructions contain a cautionary note to taxpayers that the legislation was pending at the time of printing.

People using a paper 1040 and claiming the key extender provisions should follow these steps:

State and Local General Sales Tax Deduction
  • The deduction for state and local general sales taxes will be claimed on Schedule A (Form 1040), line 5, “State and local income taxes.” Enter "ST" on the dotted line to the left of line 5 to indicate you are claiming the general sales tax deduction instead of the deduction for state and local income tax.

  • The IRS also issued Publication 600 for 2006, which includes the state and local sales tax tables, a worksheet and instructions for figuring the deduction.

  • This option is available to all taxpayers regardless of where they live, though it’s primarily designed to benefit residents of states with either minimal or no state and local income taxes.
Higher Education Tuition and Fees Deduction
  • Taxpayers must file Form 1040 to take this deduction for up to $4,000 of tuition and fees paid to a post-secondary institution. It cannot be claimed on Form 1040A.

  • The deduction for tuition and fees will be claimed on Form 1040, line 35, “Domestic production activities deduction.” Enter "T" on the blank space to the left of that line entry if claiming the tuition and fees deduction, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.
Educator Expense Adjustment to Income
  • Educators must file Form 1040 in order to take the deduction for up to $250 of out-of-pocket classroom expenses. It cannot be claimed on Form 1040A.

  • The deduction for educator expenses will be claimed on Form 1040, line 23, “Archer MSA Deduction.” Enter "E" on the dotted line to the left of that line entry if claiming educator expenses, or "B" if claiming both an Archer MSA deduction and the deduction for educator expenses on Form 1040. If entering "B," taxpayers must attach a breakdown showing the amounts claimed for each deduction.

Related Items:

Modernized e-File Available for Partnership Returns

Modernized e-File Available for Partnership Returns


IR-2007-02, Jan. 8, 2007

WASHINGTON — Beginning today, partnership taxpayers can electronically file tax year 2006 Form 1065, U.S. Return of Partnership Income, and Form 1065-B, U.S. Return of Income for Electing Large Partnerships, using the Modernized e-File platform.

“Electronic filing is a key component to modernizing our tax system,” IRS Commissioner Mark W. Everson said. “E-File improves the speed and accuracy of tax return filing, and we encourage partnership taxpayers to take advantage of this enhanced system.”

Since tax year 1986, the IRS has offered electronic filing of Form 1065. The existing 1065 e-File platform uses a proprietary data transmission format. However, the Modernized e-File platform uses the Extensible Markup Language (XML) format, which is an industry-standard method of identifying, storing and transmitting data. Both e-File platforms offer improved speed and accuracy of tax return filing. But Modernized e-File offers additional benefits, including transactional processing instead of batch processing, allowance for binary file attachments, elimination of the duplicate filing of International returns and a federal/state partnership program.

The IRS anticipates more than 400,000 partnerships will e-File in 2007. Most of those partnerships are not mandated to e-File but are encouraged to do so for the e-Filing benefits.

For tax year 2006, partnerships have the option to e-File Form 1065 through the Modernized e-File system or the existing 1065 e-File system. However, e-File for Form 1065-B is available solely through Modernized e-File. Partnership taxpayers should talk with their software provider or transmitter to determine which e-File platform to use. Beginning in January 2008, Modernized e-File will be the only e-File platform available to e-File partnership returns. At that time, the IRS will also require e-File for all 1065-B returns.

Partnership taxpayers can access detailed information about the Form 1065 e-File process by clicking on the "Modernized e-File for Partnerships" link below.

Link:

Thursday, January 4, 2007

2007 Filing Season Kicks Off with New Features, Extended Tax Breaks; Tax Forms in Mail This Week

2007 Filing Season Kicks Off with New Features, Extended Tax Breaks; Tax Forms in Mail This Week


IR-2007-01, Jan. 4, 2007

WASHINGTON — The Internal Revenue Service today began a busy 2007 filing season that features telephone excise tax refunds, a new refund deposit feature and recently enacted tax breaks that may require extra attention from taxpayers.

“Taxpayers will have a number of new tax benefits and features available this year,” IRS Commissioner Mark W. Everson said. “We encourage taxpayers to take a few minutes to review these changes, particularly those involving the recently enacted tax law provisions. The IRS will do everything it can to minimize the impact on taxpayers.”

This week, the agency is sending 17 million 1040 tax packages for 2006 to taxpayers who have previously filed paper returns. The number of paper tax booklets being mailed to Americans continues to decline as more people opt for electronic filing. The IRS expects to process about 136 million individual tax returns for 2006, with more than half of those filed electronically.

Among the major changes taking place this year:

Telephone Excise Tax Refund. Individual taxpayers will be able to request a refund if they paid the federal excise tax on long-distance or bundled service. The government stopped collecting the federal excise tax on long-distance service in August and announced plans to provide refunds of these taxes billed after Feb. 28, 2003, and before Aug. 1, 2006. More than 146 million individual taxpayers are expected to request the refund.

To request the refunds, taxpayers have several options:

  • Individual taxpayers can request the refund by using the standard amounts, which are based on the total number of exemptions claimed on the 2006 federal income tax return. Choosing the standard amount saves taxpayers the time and trouble of digging through 41 months of old phone bills. The standard amounts are $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. For example, a married couple filing a joint return with two dependent children (for a total of four exemptions) will be eligible for the maximum standard amount of $60. To get the standard amount, eligible individual taxpayers will fill out an additional line on their regular 2006 1040 return. (Line 71 on Form 1040; Line 42 on Form 1040A; Line 9 on Form 1040EZ.)

  • Alternatively, individual taxpayers who want to request a refund of the actual amount of tax paid should figure that amount using Form 8913 and report it on their income tax return.


  • Businesses and tax-exempt organizations can also request a refund under a different procedure; more information is available at IRS.gov.

New 1040EZ-T Form. For people who don’t need to file a regular tax return, the IRS has developed a special, shorter form to allow them to request the telephone refund. Copies of the Form 1040EZ-T will be available on IRS.gov, over the phone and at a variety of other locations. The IRS encourages people who qualify for the 1040EZ-T to file electronically through the Free File program, which will be available for free beginning later this month. More than 10 million taxpayers who aren’t normally required to file a tax return may be able to use this new form. Taxpayers can either request the standard amount on this form or attach a Form 8913 to request actual amounts.

Recent Tax Law Enactments. The IRS is taking a number of steps to help taxpayers get the information they need to take advantage of tax law provisions enacted in December after IRS forms went to print.

This new legislation affects a number of areas of tax law, but the most significant effect on individual taxpayers involves the deductions for state and local sales tax, higher education tuition and fees, and educator expenses.

Taxpayers can visit IRS.gov for updated information on the late legislation. The IRS will conduct a special mailing of Publication 600, which will include the state and local sales tax tables and instructions for claiming the sales tax deduction on Schedule A (Form 1040), to 6 million taxpayers who also receive the 2006 Form 1040 package this month.

For taxpayers using a paper Form 1040, they will have to follow special instructions if they are claiming any of the three deductions. The key paper 1040 Forms went to print in November, so taxpayers will have to make special notations to claim the deductions if they use these paper forms. Specific details are available on IRS.gov. For people using IRS e-file or Free File, tax software will be updated to include the three key tax provisions, and e-file will get the refunds to taxpayers faster than paper returns.

“As we always do, we encourage taxpayers who think they may claim these deductions to file electronically,” Everson said. “They will get their refunds faster through e-file. Even more importantly, e-file will greatly reduce the chances for making an error compared to claiming the deductions on the paper 1040.”

The IRS will not be able to process tax returns claiming any extender-related deductions until early February. All other returns can be filed and processed as normal. Whether claiming an extender provision or not, the IRS notes that using IRS e-file is the most accurate way to file any return and the quickest way for taxpayers to receive their refunds. Based on filings last year, only about 930,000 tax returns claimed any of the three extender provisions by Feb. 1.

New Split Refund Option. For the first time, taxpayers can split their refunds among up to three accounts held by up to three different U.S.financial institutions, such as banks, mutual funds, brokerage firms or credit unions. To split their direct-deposit refunds among two or three different accounts or financial institutions, taxpayers should complete the new Form 8888, Direct Deposit of Refund to More Than One Account. Taxpayers can also continue to use the direct deposit line on the Forms 1040 to electronically send their refunds to one account.

Free File Improvements. The free electronic filing program begins later this month featuring improvements to benefit the 95 million taxpayers — 70 percent of all taxpayers — who qualify for the program. Free File, a partnership between the IRS and the private sector Free File Alliance, is available for taxpayers who earn $52,000 or less. This year, the program features an agreement by private sector partners to remove Refund Anticipation Loans (RALs) as well as other ancillary offerings from the program.

IRS.gov, E-file Helps Taxpayers

Given the large number of changes this year, there are several easy options for taxpayers to turn to for help. IRS.gov will have information on all the tax changes and new features this year. Key features include:

1040 Central. This is a one-stop online shop for people hunting key forms, looking for what’s new in the tax code and answers to frequently asked questions.

Where’s My Refund? Once taxpayers file their tax return, they can track their refund through the online tool “Where’s My Refund?” at IRS.gov. Taxpayers will need some of the exact information from their tax return in order to use the tool. Access this secure Web site to find out if the IRS has processed the tax return and sent the refund.

Filing electronically will prevent problems for many taxpayers sorting through this year’s changes. With IRS e-file, taxpayers can get their refunds in half the time of filing a paper tax return and receiving a refund check, even faster with direct deposit. IRS computers also quickly and automatically check for errors or other missing information, making e-filed returns more accurate and reducing the chance of getting an error letter from the IRS.

“With all the changes taking place, this is a good year for paper filers to try e-file,” Everson said. “We remind taxpayers that e-filing is fast, secure and reliable.”

Taxpayers consistently give high marks to e-file in satisfaction surveys. E-file ranks as one of the government’s most popular programs, according to the American Customer Satisfaction Index. And in a survey of users of Free File, 97 percent said they would recommend it to others.