Wednesday, February 28, 2007

Farmers, Fishermen Affected by Storms Can Seek Penalty Relief

Farmers, Fishermen Affected by Storms Can Seek Penalty Relief

IR-2007-45, Feb. 28, 2007

WASHINGTON — The Internal Revenue Service announced today that farmers and fishermen may ask the IRS to waive any estimated tax penalties if they were affected by the snowstorms that began on February 19, 2007.

The timing and suddenness of the storm, as well as the resulting power outages, may have affected the ability of many farmers and fishermen to file their 2006 calendar year return by March 1, 2007.

Generally, farmers and fisherman can avoid an estimated tax penalty if they file their returns and pay the full amount of tax shown on their return by March 1, 2007. An individual is a farmer or fisherman for these purposes if two-thirds of the individual’s total gross income for the taxable year or the preceding taxable year is from farming or fishing (including oyster farming).

If a taxpayer has an underpayment of estimated tax, all or part of the penalty for the underpayment may be waived if the IRS determines that the underpayment was due to a casualty, disaster or other unusual circumstance and it would be inequitable to impose the penalty.

To request a waiver of the estimated tax penalty, affected taxpayers should complete Form 2210-F Underpayment of Estimated Tax by Farmers and Fisherman and file it with their Form 1040 series income tax return. As indicated in the instructions to Form 2210-F, a statement should be attached to the Form explaining the reasons why you are unable to meet the March 1 deadline. At the top of the Form 2210-F, write “Request for Waiver Due to Winter Ice Storms.”

Taxpayers may download forms and publications from IRS.gov or may 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.

Link:

  • Form 2210-F (Underpayment of Estimated Tax by Farmers and Fishermen)

IRS Extends Attributed Tip Income Program Deadline to June 30

IRS Extends Attributed Tip Income Program Deadline to June 30

IR-2007-44, Feb. 28, 2007

WASHINGTON — The IRS has extended the 2007 deadline until June 30 for restaurant or beverage businesses to elect to participate in the Attributed Tip Income Program.

The extension is in response to requests from restaurant and beverage industry members and is only applicable for the 2007 calendar year.

Normally, eligible establishments must elect to participate in ATIP by Feb. 28 when they timely file their Form 8027, “Employer’s Annual Information Return of Tip Income and Allocated Tips.”

To participate in the program for calendar year 2007, employers should have started to attribute tips under the provisions of Revenue Procedure 2006-30 beginning with the first payroll period on or after Jan. 1, 2007. However, for calendar year 2007 only, employers will be granted until June 30, 2007, to begin the tip attribution process and make the election to participate in ATIP. As long as the employer notifies the Service that they would like to participate in the program via Form 8027, the safe-harbor protection will begin the first pay-roll period that the employer attributes tips based on the prescribed formula under the Revenue Procedure. The ATIP participation extension does not extend the Form 8027 filing deadline.

If the employer has already filed Form 8027 without electing ATIP participation, but now desires to participate, the employer should file a duplicate Form 8027 before June 30, 2007, electing to participate in the ATIP with a notation “Duplicate Filing to Elect ATIP Participation” prominently displayed on the Form. A copy of the duplicate filing must also be sent to the attention of the Employment Tax/ATIP Coordinator in Covington, Ky., as prescribed in the Revenue Procedure.

The IRS announced ATIP on July 28, 2006. The program provides employers in the food and beverage industry with an alternative option that encourages voluntary tip income reporting by tipped employees. ATIP provides the following significant benefits for the employer and the tipped employee:

  • Reduces recordkeeping burdens for the employer and the tipped employee
  • Simplifies enrollment procedures, no one-on-one meetings with the IRS
  • Promotes accurate reporting of tip wages on federal income tax returns using the business owners records
  • Provides safe-harbor protections against tip audits for the employer and the participating employee
  • Eliminates financial hardships associated with unplanned tax liabilities resulting from tip audits.

Details and requirements for participation for employers and employees are available in Revenue Procedure 2006-30.

Link:

Michael R. Chesman to Head IRS Office of Professional Responsibility

Michael R. Chesman to Head IRS Office of Professional Responsibility

IR-2007-43, Feb. 28, 2007

WASHINGTON — Internal Revenue Service Commissioner Mark W. Everson today announced the appointment of Michael R. Chesman as Director of the Office of Professional Responsibility.

Chesman most recently served the IRS as Director of the Office of Taxpayer Burden Reduction, which he launched in 2001 before taking a position in early 2006 as senior vice president and general counsel with Ullico, Inc., an insurance and financial services holding company.

“I’m pleased we’ve gotten Michael back at the IRS,” said IRS Commissioner Mark W. Everson. “His legal expertise is a good fit for the Office of Professional Responsibility, which enforces high professional and ethical standards among tax practitioners.”

The Office of Professional Responsibility (OPR) is responsible for setting, communicating and enforcing standards of competence, integrity and conduct among tax practitioners—specifically, attorneys, certified public accountants, enrolled agents and others who represent taxpayers before the IRS.

Chesman will report for duty on March 1.

During his tenure in the Office of Taxpayer Burden Reduction, Chesman was able to save taxpayers more than 200 million hours of work by simplifying tax responsibilities or eliminating unnecessary filing requirements.

Earlier in his career, Chesman served in the IRS Chief Counsel’s Office and also worked as an attorney for Prudential Financial, where, in addition to other duties, he was in charge of the tax and employee benefits divisions of the Prudential law department. He is a graduate of the University of Virginia School of Law and Yale University.

Link:

Tuesday, February 27, 2007

IRS Offers Tips for Accurate Schedule K-1 Reporting

IRS Offers Tips for Accurate Schedule K-1 Reporting

IR-2007-42, Feb. 27, 2007

WASHINGTON — The Internal Revenue Service today provided tips to businesses, individuals and tax professionals to avoid errors involving Schedules K-1.

Income, deductions and credits from partnerships, S corporations, estates and trusts are reported to investors on Schedules K-1. Correct information on the forms by issuers and reporting of the income by recipients is important because the IRS matches the data to other tax returns to ensure accurate reporting.

A recent study found that many unnecessary notices issued to taxpayers could have been avoided if Schedule K-1 entity information was accurate when the forms were filed and if offsets against income reported on Schedule K-1 were reported correctly.

Businesses, individuals and return preparers can avoid unnecessary questions and correspondence by following these instructions:

  • For flow-through entities issuing Schedules K-1 — Ensure entity information on Schedules K-1 properly identifies the taxpayer (or other entity) responsible for reporting the Schedule K-1 income.

  • For recipients of Schedules K-1 — Avoid netting or combining income against losses or expenses not reported on Form 8582, Passive Activity Loss Limitations. Refer to the instructions for Form 8582 on how to properly report passive activity losses. Ordinary business income should be reported separately from related deductions, such as unreimbursed partnership expenses or the Section 179 expense deduction. Refer to the Schedule E instructions for information on properly accounting for deductions related to Schedule K-1 income.

For example, unreimbursed partnership expenses from nonpassive activities should be entered on a separate line in column (h) of Schedule E’s line 28 and labeled “UPE” in column (a) of the same line. Do not combine these expenses or net them against any other amounts from the partnership.

To reduce errors, the IRS also encourages electronic filing of Schedules K-1 and other tax forms.

Related Items:

Monday, February 26, 2007

Eileen Mayer Will Lead IRS’ Criminal Investigation Division

Eileen Mayer Will Lead IRS’ Criminal Investigation Division


IR-2007-41, Feb. 26, 2007

WASHINGTON — Eileen Mayer, currently head of the IRS’s Office of Fraud / Bank Secrecy Act, was named today as head of the agency’s Criminal Investigation Division.

“Eileen is a seasoned prosecutor and knows the criminal justice system inside and out,” said Mark W. Everson, IRS Commissioner. “She will play a key role in IRS efforts to halt tax fraud. I look forward to her joining the leadership team.”

As director of the IRS Small Business/Self-Employed Division’s Office of Fraud / BSA, Mayer was responsible for the agency’s internal fraud referral program. Her office ensured that egregious cases of noncompliance uncovered by the agency’s examiners were forwarded to criminal investigators working for CI. She also was responsible for the agency’s mission as one of the federal regulators involved in the enforcement of BSA. Within the agency, SB/SE is responsible for enforcement and compliance issues involving individual taxpayers and small businesses.

Mayer came to the IRS in January 2006 after 19 years at the U.S. Attorney’s Office in Washington, D.C. She was deputy chief of the criminal division, supervising the prosecution of federal criminal offenses in the D.C. area. Her tenure included a two-year detail as an Associate Deputy Attorney General with the Department of Justice and a three-year detail as special assistant to the Director of the Financial Crimes Enforcement Network (FinCEN). FinCEN is a branch of the Department of Treasury.

Her duties at FinCEN included coordinating the implementation of the original Bank Secrecy Act regulations for non-bank financial institutions. The act is the main federal law used to combat money laundering.

Mayer received a degree in economics from Randolph-Macon Women’s College at Lynchburg, Va., and her law degree from Georgetown University Law Center.


Friday, February 23, 2007

10 Million Taxpayers Miss Out on Telephone Tax Refunds; IRS Urges People to Check before Filing

10 Million Taxpayers Miss Out on Telephone Tax Refunds; IRS Urges People to Check before Filing

WASHINGTON — The Internal Revenue Service today urged taxpayers to check to see if they qualify for the telephone excise tax refund after more than 10 million early filers did not request the one-time refund.

In the first release of this year’s weekly filing season statistics, about 30 percent of all taxpayers did not request the telephone tax refund.

“Many taxpayers are overlooking this special refund and the chance to get a bigger refund,” said IRS Commissioner Mark W. Everson. “We encourage taxpayers to spend a few extra minutes reviewing their tax return to make sure they are making an accurate request. A little extra time can mean a bigger refund check.”

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.

To make the refund easier to figure, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only have to fill out one line on their return, and they don’t need to present proof to the IRS.

Out of the tax returns filed through Feb. 16, more than 10 million taxpayers did not request the telephone tax refund. And nearly half of those returns — more than 4.8 million — were completed by a tax preparer.

“We are surprised how many tax preparers are overlooking the telephone tax refund,” Everson said. “We want all taxpayers entitled to this refund to get it, whether they are using a tax preparer or doing the return themselves.”

In other statistics released today, early filings show e-file returns are up nearly 3 percent and e-filed returns prepared on home computers up 7 percent compared to last year. Through Feb. 16, the average refund is $2,733, nearly $100 above last year.

For people requesting the telephone tax refund, it adds $30 to $60 — or even more — onto a refund. 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. 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. 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 of this Web site. Here, you can download forms, find answers to frequently-asked questions and link to participating Free File partners.

2007 FILING SEASON STATISTICS

Cumulative through the weeks ending 2/17/06 and 2/16/07

2006

2007

% Change

Individual Income Tax Returns:

Total Receipts

38,106,000

37,793,000

-0.8

Total Processed

33,760,000

34,232,000

1.4

E-filing Receipts:

TOTAL

29,645,000

30,445,000

2.7

Tax Professionals

21,069,000

21,269,000

0.9

Self-prepared

8,576,000

9,176,000

7.0

Web Usage:

Visits to IRS.gov

54,121,593

59,203,355

9.4

Total Refunds:

Number

31,129,000

31,784,000

2.1

Amount

$82.084 Billion

$86.862 Billion

5.8

Average refund

$2,637

$2,733

3.6

Direct Deposit Refunds:

Number

25,842,000

26,897,000

4.1

Amount

$73.531 Billion

$78.972 Billion

7.4

Average refund

$2,845

$2,936

3.2

Related Items:

Thursday, February 22, 2007

Accounting Issue for Automobile Dealers To Be Addressed by IRS Industry Issue Resolution Program

Accounting Issue for Automobile Dealers To Be Addressed by IRS Industry Issue Resolution Program

IR-2007-39, Feb. 22, 2007

WASHINGTON — The Internal Revenue Service and the Treasury Department today announced that they will work to publish guidance for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, last-in, first out (LIFO) inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars.

“The accounting issue confronting the automobile industry has been selected for the Industry Issue Resolution (IIR) Program, which provides guidance to help clarify complex tax issues. This program can provide a greater level of certainty for taxpayers, which is important in today's environment," said Large and Midsize Business Commissioner Deborah M. Nolan. "By following the guidance in the IIR, taxpayers can avoid time consuming audits on this issue."

Federal courts in the 1980’s ruled that the LIFO pooling rules require taxpayers to account for cars and trucks in different pools. Since these rulings were handed down, the line between trucks and cars offered for sale has blurred.

Crossover vehicles include sport-utility vehicles, minivans, and pick-up trucks used as substitutes for cars, and it is not clear how they should be treated for LIFO purposes. A request for guidance was submitted by the law firm of Miller & Chevalier Chartered on behalf of the National Automobile Dealers Assn. (NADA) to resolve the issue arising from vehicles that do not fit clearly into either a car or a truck pool.

Since its inception in 2000, the IIR program has resulted in resolution of many different tax issues cumulatively affecting thousands of taxpayers in many different lines of business. For each issue selected, a multi-functional team gathers and analyzes the relevant facts and recommends guidance.

At any time, business associations and taxpayers may submit tax issues that they believe could be resolved through the IIR program. IIR project selection criteria and submission procedures are outlined in Revenue Procedure 2003-36, which is available on the IRS Web site at IRS.gov. The IRS reviews submissions at least semi-annually with the next review to be completed by March 31, 2007

Attached is detailed information regarding the issues the IRS considered during its latest review of IIR submissions.

ISSUES SUBMISSIONS FOR THE IIR PROGRAM REVIEWED - SELECTED AS A 2006 IIR PROJECT


Motor Vehicle Industry

Issue Description: Clarification of LIFO Pools for Automotive Wholesalers, Manufacturers, and Dealers

IRS Contact:

David Horton
Director of Field Operations, HMT West
Heavy Manufacturing and Transportation

Phone # 313-234-1340

Submitted by: Miller & Chevalier Chartered on behalf of NADA

ISSUES SUBMISSIONS FOR THE IIR PROGRAM REVIEWED - NOT SELECTED AS A 2006 IIR PROJECT

Motor Vehicle Industry

Issue Description: Application of IRC 263A for Franchised Automobile and Truck Dealers

Submitted by: Crowe, Chizak & Co., LLC, on behalf of NADA

Trucking Industry

Issue Description: Taxable Gross Weight of Truck

Submitted by: Penske Truck Leasing Co., LP

Cross Industry

Issue Description: Electronically Filed W-2 Deadline

Submitted by: National Payroll Consortium, Inc.

Issue Description: Medical Insurance Paid by S-Corp for Greater than 2% Shareholder

Submitted by: Christine Zinkand, self

Issue Description: Separate Tax Identification from SSN

Submitted by: Luis A. Marhado, self

Issue Description: Business Reporting of Payments Made to Service Providers

Submitted by: Terry Hamilton, self

Issue Description: Royalty Payments and IRC 263A

Submitted by: Freed, Maxick, and Battaglia, PC

Tuesday, February 20, 2007

Purchasers of Honda Hybrids Still Qualify for Tax Credit

Purchasers of Honda Hybrids Still Qualify for Tax Credit

IR-2007-38, Feb. 20, 2007

WASHINGTON — The Internal Revenue Service announced that purchasers of American Honda Motor Company, Inc., qualified vehicles may continue to claim the Alternative Motor Vehicle Credit. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold.

Honda sold 12,716 qualifying vehicles to retail dealers in the quarter ending Dec. 31, 2006. This brings the cumulative number of qualified Honda hybrid vehicles sold as of Dec. 31, 2006, to 41,124.

The credit amount and make and model of qualified vehicles sold are:

Honda Accord Hybrid Model Year 2006
without updated calibration $650

Honda Accord Hybrid Model Year 2006 $1,300
with updated calibration

Honda Accord Hybrid, Model Year 2007 $1,300

Honda Accord Hybrid Navi Model Year 2007 $1,300

Honda Civic Hybrid Model Year 2006 and 2007 $2,100

Honda Insight Model Year 2006 $1,450


Taxpayers may claim the full amount of the 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.

Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 “Dirty Dozen” Tax Scams

Fraudulent Telephone Tax Refunds, Abusive Roth IRAs Top Off 2007 “Dirty Dozen” Tax Scams

IR-2007-37, Feb. 20, 2007

WASHINGTON –– The Internal Revenue Service today identified 12 of the most blatant scams affecting American taxpayers and warned people not to fall for schemes peddled by scamsters.

This year the “Dirty Dozen” highlights five new scams that IRS auditors and criminal investigators have uncovered. Topping off the list are fraudulent refunds being claimed in connection with the special Telephone Excise Tax Refund available to most taxpayers this filing season. The IRS is actively investigating instances of this scam involving tax preparers who are preparing inflated refund requests.

Also new to the Dirty Dozen this year are abuses pertaining to Roth IRAs, the American Indian Employment Credit, domestic shell corporations and structured entities.

“Taxpayers shouldn’t let their guard down,” IRS Commissioner Mark W. Everson said. “Don’t get taken by scam artists making outrageous promises. If you use a tax professional, pick someone who is reputable. Taxpayers should remember they are ultimately responsible for what is on their tax return even if some unscrupulous preparers have steered them in the wrong direction.”

Involvement in tax schemes leads to problems for scam artists and taxpayers. Tax return preparers and promoters risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:

1. Telephone Excise Tax Refund Abuses: Early filings show some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. 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 to which they are entitled. Some tax preparers are helping their clients file apparently improper requests. The IRS is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts and against the return preparers who help them.

2. Abusive Roth IRAs: Taxpayers should be wary of advisers who encourage them to shift under-valued property to Roth Individual Retirement Arrangements (IRAs). In one variation, a promoter has the taxpayer move under-valued common stock into a Roth IRA, circumventing the annual maximum contribution limit and allowing otherwise taxable income to go untaxed.

3. Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for loans in their names. These Internet-based criminals pose as representatives of a financial institution –– or sometimes the IRS itself –– and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. It is important to note the IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040 to confirm it.

4. Disguised Corporate Ownership: Domestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity. Once formed, these anonymous entities can be, and are being, used to facilitate underreporting of income, non-filing of tax returns, listed transactions, money laundering, financial crimes and possibly terrorist financing. The IRS is working with state authorities to identify these entities and to bring their owners into compliance.

5. Zero Wages: In this scam, which first appeared in the Dirty Dozen in 2006, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 showing zero or little income is submitted with a federal tax return. The taxpayer may include a statement rebutting wages and taxes reported by the payer to the IRS. An explanation on the Form 4852 may cite statutory language behind Internal Revenue Code sections 3401 and 3121 or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation.

6. Return Preparer Fraud: Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers make their money by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Some preparers promote filing fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, “If it sounds too good to be true, it probably is.” Remember that no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2006, 109 tax return preparers were convicted of tax crimes and sentenced to an average of 18 months in prison.

7. American Indian Employment Credit: Taxpayers submit returns and claims reducing taxable income by substantial amounts citing an American Indian employment or treaty credit. Although there is an Indian Employment Credit available for businesses that employ Native Americans or their spouses, there is no provision for its use by employees. In a somewhat similar scam, unscrupulous promoters have informed Native Americans that they are not subject to federal income taxation. The promoters solicit individual Indians to file Form W-8 BEN seeking relief from all withholding of federal taxation. A recent “phishing” variation has promoters using false IRS letterheads to solicit personal financial information that they claim the IRS needs in order to process their "non-tax" status.

8. Trust Misuse: For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits. There are currently more than 150 active abusive trust investigations underway and 49 injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.

9. Structured Entity Credits: Promoters of this newly identified scheme are setting up partnerships to own and sell state conservation easement credits, federal rehabilitation credits and other credits. The purported credits are the only assets owned by the partnership and once the credits are fully used, an investor receives a K-1 indicating the initial investment is a total loss, which is then deducted on the investor’s individual tax return. Forming such an entity is not a viable business purpose. In other words, the investments are not valid, and the losses are not deductible.

10. Abuse of Charitable Organizations and Deductions: The IRS continues to observe the use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income. Contributions of non-cash assets continue to be an area of abuse, especially with regard to overvaluation of contributed property. In addition, the IRS is noticing the return of private tuition payments being disguised as charitable contributions to religious organizations.

11. Form 843 Tax Abatement: This scam rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83-Property Transferred in Connection with Performance of Service."

12. Frivolous Arguments: Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

IRS Still Watches Scams That Fall Off the List

Five of last year’s Dirty Dozen tax scams rotated off the list for 2007. While the IRS has seen a decline in the occurrence of some of these scams –– abusive credit counseling agencies, for example –– other problems, such as offshore abusive transactions continue to be an area of particular concern for the agency. The absence of a particular scheme from the Dirty Dozen should not be taken as an indication that the IRS is unaware of it or not taking steps to counter it.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using IRS Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at IRS.gov, or by mail by calling 1-800-829-3676. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential. The person may also be entitled to a reward.

Links:

Friday, February 16, 2007

IRS Moves to Stop Abusive Telephone Tax Refund Requests; Search Warrants Target Tax Preparers in Seven Cities Nationwide

IRS Moves to Stop Abusive Telephone Tax Refund Requests; Search Warrants Target Tax Preparers in Seven Cities Nationwide

IR-2007-36, Feb. 16, 2007

WASHINGTON — Search warrants were carried out in seven cities this week by special agents from the Internal Revenue Service. According to affidavits filed in federal court, the IRS is seeking evidence from tax-preparation businesses suspected of preparing returns on behalf of clients requesting egregious amounts involving this year’s special telephone excise tax refund.

IRS criminal investigators served search warrants at tax preparation businesses in Atlanta, Ga.; Dallas, Tyler and Athens, Texas; Riverside, Calif.; Miami, Fla.; and Baton Rouge, La. Special agents temporarily closed the businesses, seizing computers and documents to use in their investigations.

“We want everyone who is eligible for the telephone tax refund to claim it but not to inflate the amount requested,” said IRS Commissioner Mark W. Everson. “We have seen limited but serious instances of abuse, and we’ve sent in criminal investigators to pursue the matter accordingly.”

Along with the IRS enforcement action in seven cities, other tax preparers across the nation who are preparing questionable telephone tax refund requests are receiving visits from IRS revenue agents (auditors) and special agents. The agency began conducting the visits last week. The IRS advised taxpayers 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.

At the same time, the IRS urged taxpayers now filling out their 2006 returns not to overlook the telephone tax refund. Out of early filers, nearly one in three are failing to request this special refund, and although some of them may not be eligible, others may qualify and not know it. The vast majority of those who are requesting it are doing so correctly.

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. Officials also authorized a one-time refund of the federal excise tax paid 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 has monitored telephone excise tax refund requests for potential problems since the tax-filing season opened in early January. The agency has seen some problems with returns from tax preparers that may indicate criminal intent.

Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 — hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the three-percent long-distance tax.

Taxpayers who request more of a refund than they are entitled to receive will have their refunds held and be subject to an audit.

To make the refund easier to figure, the government established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. Taxpayers only have to fill out one line on their return, and they don’t need to present proof to the IRS.

To avoid mistakes and get a refund quickly, the IRS encourages taxpayers to file their tax return electronically and electronically deposit their refund 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.

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 Items:

Wednesday, February 14, 2007

Merck Agrees to Pay IRS $2.3 Billion

Merck Agrees to Pay IRS $2.3 Billion

IR-2007-35, Feb. 14, 2007

WASHINGTON —The IRS announced today that it had entered into an agreement that resolves several disputed tax issues with Merck & Co., Inc. and its subsidiaries. The agreement will result in a payment to the government of approximately $2.3 billion in federal tax, net interest and penalties, and resolves all issues that had been in dispute between the parties for the tax years 1993-2001. The resolution is one of the largest achieved in recent years by the Service and a taxpayer through the examination process.

Both the IRS and Merck acknowledge that reaching an agreement of this magnitude was the result of cooperation by both parties. To facilitate this agreement, the IRS and the taxpayer used various issue management strategies, including the Fast Track Settlement Program.

Among the significant issues resolved were three issues that resulted from Merck’s use of minority equity interest financing transactions. The execution of these agreements should facilitate the ability of the IRS and the taxpayer to move forward and effectively address tax issues arising in subsequent examination years.

Related link: Fast Track Settlement

Tuesday, February 13, 2007

IRS Extends Deadline for Settlement Offered To Certain Foreign Embassy Staff

IRS Extends Deadline for Settlement Offered To Certain Foreign Embassy Staff


IR-2007-34, Feb. 13, 2007

WASHINGTON — The Internal Revenue Service will extend until March 30 the deadline for current and former U.S.-based employees of foreign embassies, consular offices and missions and international organizations to participate in a one-time settlement initiative to resolve outstanding tax matters related to their employment.

The deadline for participating in the offer, first announced November 17, had originally been February 20. Following requests from several embassies, the date is being extended to make certain those wishing to participate in the initiative have the opportunity to do so.

The offer is open to employees of those organizations who are U.S. citizens, green-card holders and foreign employees who have U.S. tax obligations.

The IRS estimates that as many as half of these employees subject to U.S. tax either fail to report their wages, claim deductions they are not entitled to, incorrectly establish SEP/IRA retirement plans, fail to pay self-employment tax or fail to file tax returns at all.

To participate, employees must submit amended or original tax returns, which properly reflect their income and expenses, for tax years 2003, 2004 and 2005.

Failure to act now could mean facing a costly audit process in the future. Foreign embassy, consular office or international organization employees who fail to come forward may be subject to IRS audits and penalties which could cover more than just three years.

Additional guidance on the extension will be announced soon.

IRS Selects 16 New Members for IRS Advisory Council

IRS Selects 16 New Members for IRS Advisory Council

IR-2007-33, Feb. 13, 2007

WASHINGTON — The Internal Revenue Service today announced the selection of 16 new members for the Internal Revenue Service Advisory Council (IRSAC). These appointees will join 11 returning members who are in their last year of a three-year term.

The council members are scheduled to meet in Washington, D.C. several times in 2007, with a public report to be provided during a meeting open to the public on November 15, 2007.

The 16 new members appointed to serve on the council are:

Herbert N. Beller, JD, is a partner with Sutherland, Asbill & Brennan; his
focus is on corporate tax planning and controversy work for publicly-traded
and closely held entities. Beller resides in Chevy Chase, Md.

Marsha Blumenthal is a professor of Economics at the University of St. Thomas in St. Paul, Minnesota and works on small business and tax exempt issues. Blumenthal resides in Lakeland, Minn.

Michael P. Boyle, JD; LLM was a Vice-President, Finance, with the Microsoft Corporation working closely with senior management and had primary responsibility for the tax department. Boyle resides in Seattle, Wash.

Charles Christian is a professor at Arizona State University and currently serves as the Director of the Arizona State School of Accountancy. Christian resides in Tempe, Ariz.

Francis X. Degen, an Enrolled Agent, is the owner of Francis X. Degen, EA. His practice includes tax preparation and tax planning for individuals and small businesses. Degen resides in Setauket, N.Y.

Andrew B. Lyon is a principal at PricewaterhouseCoopers LLP. Dr. Lyon is a partner in the National Economic Consulting group, which is engaged in a broad range of economic, statistical, and modeling services in the area of taxation, social security, health, and other policy areas. Lyon resides in Bethesda, Md.

Lillian F. Mills is an associate professor at the University of Texas at Austin, focusing on corporate tax compliance, financial accounting for income taxes and earnings management. Mills resides in Austin, Texas.

Daniel T. Moore, CPA, is a senior accountant and Chief Financial Officer for the Moore Agency, Incorporated, where he operates the Accounting and Solutions Department. Moore resides in Salem, Ohio.

Robert G. Nath, JD, is the managing member of Robert G. Nath, PLLC, a tax firm that is nationally recognized in numerous aspects of tax practice. He has special expertise in tax litigation, controversies, procedure and representation before United States Tax Court, Federal trial and appellate courts, and state tax authorities as well as the Internal Revenue Service. Nath resides in Potomac, Md.

George A. Plesko is an associate professor of Accounting with the University of Connecticut, School of Business with more than 20 years experience in tax policy analysis in both government and academia. Plesko resides in Sharon, Mass.

Donna Rodriguez, JD, is currently manager of Donna L. Rodriguez, PLLC, where she operates a full service accounting and tax practice focusing on small to medium companies. Rodriguez resides in The Woodlands, Texas.

John S. Satagaj, JD, is the principal of John S. Satagaj, Attorney at Law, specializing in small business, trade association and tax matters. Satagaj resides in Leesburg, Va.

John Karl Scholz is a professor with the University of Wisconsin-Madison writing extensively on the earned income tax credit and low-wage labor markets. Scholz resides in Madison, Wis.

Philip M. Tatarowicz, JD; LLM is a partner with Ernst & Young, assisting the firm’s clients worldwide in multi-state tax matters. Tatarowicz resides in Hinsdale, Ill.

Eric J. Toder is a Senior Fellow with the Urban Institute and is an adjunct professor at the Georgetown Public Policy Institute, performing and directing research on tax and retirement policy issues for government agencies and private foundations. Toder resides in Cabin John, Md.

George K. Yin, JD, is an Edwin S. Cohen Distinguished Professor of Law and Taxation with the University Of Virginia School Of Law in Charlottesville, VA. Yin resides in Charlottesville, Va.

IRS to Waive Estimated Tax Penalty for U.S. Citizens or Residents Living and Working Abroad

IRS to Waive Estimated Tax Penalty for U.S. Citizens or Residents Living and Working Abroad

IR-2007-32, Feb. 13, 2007

WASHINGTON — The Internal Revenue Service and U.S. Treasury today announced that they have released guidance on the estimated tax penalty for citizens or residents of the United States living and working abroad.

The Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, 120 Stat. 345 (TIPRA), enacted in May 2006, changed the maximum amount of foreign earned income and housing costs that may be excluded from gross income under section 911 of the Internal Revenue Code.

TIPRA increased the maximum amount of foreign earned income that may be excluded from gross income to $82,400. The law also limited the amount of housing costs that may be excluded or deducted under section 911. TIPRA further provides that the tax applicable to income not covered by the foreign income exclusion will now be calculated as though the exclusion had not been elected. These changes are effective for taxable years beginning after December 31, 2005.

Because these changes are retroactive to the beginning of the taxable year, persons relying on the law as it existed prior to the enactment of TIPRA may have underpaid their estimated tax liabilities for 2006 and may be liable for an addition to tax under section 6654(a). The IRS will waive additions to tax under section 6654(a) to the extent that the underpayment is attributable to the changes enacted under TIPRA.

This waiver is only available to qualified individuals who file a Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, with their timely filed Form 1040, U.S. Individual Income Tax Return, or Form 1040X, Amended U.S. Individual Income Tax Return.

About 300,000 individual taxpayers filed Form 2555 and Form 2555-EZ for tax year 2004, the latest year for which data is available.

Related Items:

Friday, February 9, 2007

New Chiefs at Human Capital Office, Agency-Wide Shared Services

New Chiefs at Human Capital Office, Agency-Wide Shared Services

IR-2007-31, Feb. 9, 2007

WASHINGTON — The IRS Commissioner has selected Robert Buggs as the Chief Human Capital Officer and Jim Falcone as the new Chief, Agency-Wide Shared Services.

“Robert and Jim are strong additions to the IRS leadership team,” said IRS Commissioner Mark W. Everson. “Robert has been a highly effective leader of human capital programs and services, and Jim has a firm understanding of tax administration operations and business priorities.”

Buggs is a senior executive with more than 25 years of experience in human resources management, with about 16 of these years within IRS. Since joining the IRS, he has held a variety of human resources and policy positions, working in areas ranging from labor relations to the Taxpayer Advocate Service.

In 2004, Buggs became the Deputy Chief Human Capital Officer. He shared principal program oversight and responsibility with the Chief Human Capital Officer to formulate and implement human capital strategies, policies and programs for more than 100,000 IRS employees. These programs include hiring and recruitment, learning and education, workforce retention and transition, labor and employee relations, planning and measures, executive services, pay for performance, and succession planning.

Buggs holds a Bachelor of Science Degree from Bowie State University and has completed graduate work at the American and Catholic universities in Washington.

Falcone has more than 33 years of IRS experience, managing operations support programs at the field and national levels. As chief of Agency-Wide Shared Services, Falcone will lead an organization that develops procedures and implements policy for the IRS’s internal real estate and facilities management, EEO and Diversity, personnel, procurement and customer support activities.

Falcone has held increasingly responsible positions in field tax administration at the district, regional and campus levels, including Taxpayer Service Division Chief in Brooklyn, New York, and Quality Assurance and Management Support Division in Brookhaven, New York, before joining Resources Management (which later became Support Services) in 1992.

Falcone played a central role in the restructuring of the IRS following Congress' passage of the Restructuring and Reform Act of 1998 and led the design team that ensured the establishment of the Agency Wide Shared Services organization. He was appointed to the Senior Executive Service in 2001 and named Director, Real Estate and Facilities Management, in 2003. While serving as Acting Director, Mission Assurance, he established the new Mission Assurance organization, responsible for oversight of the IRS physical, data and personal security programs.

Falcone holds a Bachelor of Science degree in Business and Management from the State University of New York College at Old Westbury.

Thursday, February 8, 2007

IRS Offers Opportunity for Employers to Satisfy Tax Obligations of Rank-and-File Employees with ‘Backdated’ Stock Options

IRS Offers Opportunity for Employers to Satisfy Tax Obligations of Rank-and-File Employees with ‘Backdated’ Stock Options

IR-2007-30, Feb. 8, 2006

WASHINGTON — Internal Revenue Service officials today announced an initiative aimed at providing relief for rank-and-file employees affected by their companies’ issuance of backdated and other mispriced stock options. While the program will be available to help these employees who may be unaware that they held backdated options, the opportunity will not be available for backdated options exercised by most corporate executives or other insiders.

If an employee exercised a ‘backdated’ stock option in 2006, the employee may owe an additional 20-percent tax, plus an interest tax, under the Federal tax laws governing deferred compensation. If the option had been properly priced, the employee normally would only have owed income tax on the difference between the value at the date of grant and exercise.

The initiative, described in Announcement 2007-18, allows companies to step forward and pay the additional 20-percent tax and any interest tax that employees owe. The initiative does not permit the company to pay the additional tax for stock options exercised by its top executives or other insiders.

"This shameful practice was widespread,” said IRS Commissioner Mark W. Everson. “We are allowing employers to satisfy the tax obligations of employees who did not knowingly participate in these schemes. This initiative does not extend to the executives and insiders who were the principal beneficiaries of the backdating schemes. We continue to pursue these cases and work closely with the Securities and Exchange Commission and the Justice Department as appropriate."

This initiative does not involve or affect any other federal agency’s investigations or regulatory action.

Under a 2004 law, the tax consequences associated with backdated and other mispriced stock options issued at a discount affect most recipients who exercised their options in 2006.

If these stock options were issued to the employees at a below-market price, the 2004 law requires an additional 20-percent tax and interest tax on options exercised in 2006. The law does not affect options that were earned and vested before 2005.

Under this initiative, employers must notify the IRS of their intent to participate by Feb. 28, 2007. The employers, in turn, will be required to contact affected employees by Mar. 15, 2007 to inform them that the employer has applied to participate in the Compliance Resolution Program.

Where an option has been backdated, the employee remains obligated to pay the full amount of income tax due upon exercise, including any additional gain realized from backdating, whether or not the employee was aware of the backdating.

Affected employees who have not previously taken corrective action on their own will remain liable for the additional 20 percent tax and the interest tax if their employers do not participate in the program or fail to abide fully by its terms.

Corporations that elect to participate and relieve their affected employees will be required to provide the specific details about the options, including specifics on the tax calculation that will enable the IRS to ensure the U.S. Treasury has received the full amount of taxes owed.

The taxes the companies will pay to relieve employee tax bills will be treated as additional 2007 compensation income for those employees in the 2007 tax year.

Related Item:

Purchasers of GM Hybrids Still Qualify for Tax Credit

Purchasers of GM Hybrids Still Qualify for Tax Credit

IR-2007-29, Feb. 8, 2007

WASHINGTON — The Internal Revenue Service announced that purchasers of General Motors Corp. qualified vehicles may continue to claim the Alternative Motor Vehicle Credit. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold.

General Motors sold 3,358 qualifying vehicles to retail dealers in the quarter ending December 31, 2006. This brings the cumulative number of qualified General Motors hybrid vehicles sold to 5,558. The credit amount and make and model of qualified vehicles sold are:

Chevrolet Silverado Hybrid 2WD, Model Years 2006 and 2007 — $250

Chevrolet Silverado Hybrid 4WD, Model Years 2006 and 2007 — $650

GMC Sierra Hybrid 2WD, Model Years 2006 and 2007 — $250

GMC Sierra Hybrid 4WD, Model Years 2006 and 2007 — $650

Saturn Vue Green Line, Model Year 2007 — $650

Taxpayers may claim the full amount of the 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

Phase-Out Credit for Toyota and Lexus Hybrids Continues With Reporting of Fourth Quarter Sales

Phase-Out Credit for Toyota and Lexus Hybrids Continues With Reporting of Fourth Quarter Sales

IR-2007-28, Feb. 8, 2007

WASHINGTON — After reviewing the fourth quarter sales of Toyota Motor Sales USA Inc., the Internal Revenue Service announced that purchasers Toyota and Lexus vehicles may continue to claim the Alternative Motor Vehicle Credit. Given the number of vehicles sold, the phase out period for Toyota vehicles began on October 1, 2006. Toyota sold 67,857 qualifying vehicles to retail dealers in the quarter ending Dec. 31, 2006. This brings the cumulative sales of qualified Toyota hybrid vehicles sold from the period of Jan. 1, 2006, through Dec. 31, 2006, to 212,073.

Taxpayers may claim the full amount of the credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th qualified 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. The sale of Toyota ’s 60,000th qualified vehicle occurred in the quarter ending September 30, 2006.

The applicable credit amounts are as follows:

Qualifying Vehicle

Full Credit When Purchased By 9/30/06

Reduced Credit When Purchased From 10/1/06 through 3/31/07

Reduced Credit When Purchased From 4/1/07 through 9/30/07

Beginning 10/1/07

05, 06 and 07

Toyota Prius

$3,150

$1,575

$787.50

$0

06 and 07
Toyota Highlander 2WD and 4WD

$2,600

$1,300

$650

$0

07
Toyota Camry Hybrid

$2,600

$1,300

$650

$0

06 and 07 Lexus RX 400h
2WD and 4WD

$2,200

$1,100

$550

$0

07 Lexus GS450h

$1,550

$775

$387.50

$0

See Related Item: Hybrid Cars and Alternative Motor Vehicles

Wednesday, February 7, 2007

IRS Moves to Prevent Telephone Tax Refund Abuse; Help Taxpayers Make Accurate Requests

IRS Moves to Prevent Telephone Tax Refund Abuse; Help Taxpayers Make Accurate Requests

IR-2007-27, Feb. 7, 2007

WASHINGTON — The Internal Revenue Service announced today it is taking additional steps to prevent abuse by tax preparers and help taxpayers make accurate requests for the one-time telephone excise tax refund.

This week, IRS Criminal Investigation special agents and IRS revenue agents are conducting special site visits with tax preparers across the nation to prevent inflated requests made for the one-time telephone tax refund. Visits began this week to 22 different tax preparers who have handled more than 1,500 tax returns.

“We are taking this unusual step to confront blatant abuse of this important refund program,” said IRS Commissioner Mark W. Everson. “We want tax preparers to prepare accurate tax returns. If they don’t, we will move swiftly to impose civil penalties and, where warranted, seek criminal sanctions.”

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. The IRS 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.

The IRS has monitored telephone excise tax refund requests for potential problems since the tax-filing season opened in early January. The IRS has seen some problems with returns from tax preparers that may indicate criminal intent.

Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 – hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the three-percent long-distance tax.

Taxpayers who request more of a refund than they are entitled to receive will have their refunds held and they may be subject to an audit.

To make the refund easier to figure, the IRS established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. 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.

At the same time, the IRS issued a new reminder today for taxpayers who are not filing for the refund even though they may qualify. In early returns filed this year, more than one-third of early filers did not request the telephone tax refund. Other taxpayers are making mistakes when requesting the refund. The IRS encourages taxpayers to see if they qualify for the telephone tax refund and to make sure they fill out tax returns accurately and completely.

The best and most reliable information on this refund can be found in the Telephone Excise Tax Refund section on the front page of IRS.gov, the tax agency’s popular 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 Items:

Tuesday, February 6, 2007

IRS Begins Processing Returns Claiming Extender Deductions; Urges Taxpayers to File Electronically, Check on Phone Tax Refund

IRS Begins Processing Returns Claiming Extender Deductions; Urges Taxpayers to File Electronically, Check on Phone Tax Refund

IR-2007-26, Feb. 6, 2007

WASHINGTON — The Internal Revenue Service has started processing tax returns that claim key tax provisions renewed by legislation enacted in December and urged taxpayers not to overlook the one-time telephone tax refund.

After completing planned updates to its systems to accommodate the “extender” changes, the IRS began processing on Saturday both e-file and paper tax returns claiming deductions for state and local sales taxes, higher education tuition and fees, and educator expenses.

The IRS emphasized that using e-file is the easiest and most accurate way to file a return, including any return claiming extender-related benefits. Makers of tax-preparation software have updated their products to incorporate these reinstated tax breaks.

“As we always do, we encourage taxpayers who think they may claim these deductions to file electronically,” said IRS Commissioner Mark W. Everson. “They will get their refunds in half the time, and e-file greatly reduces the chance for making an error compared to using a paper return.”

While taxpayers using software will fill out their returns as normal, taxpayers claiming the extender provisions on paper returns will have to take special steps. Because the extender legislation was enacted after the new tax forms went to print last year, separate lines for the affected deductions were omitted from 2006 individual income tax forms. For that reason, people filling out a paper return must use existing lines on the current Form 1040 and Schedule A to claim the three major extenders provisions.

Paper filers should use these steps:

State and Local General Sales Tax Deduction

  • Claim the deduction for state and local general sales taxes 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 that the general sales tax deduction is being claimed, instead of the deduction for state and local income tax.
  • The new on-line sales tax calculator, launched last month on IRS.gov, can help taxpayers figure this deduction. In addition, Publication 600, which includes the state and local sales tax tables, a worksheet and instructions for figuring the deduction, was mailed last month to six million filers of paper 1040 forms.

Higher Education Tuition and Fees Deduction

  • Claim the deduction for up to $4,000 in higher education tuition and fees 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," attach a breakdown showing the amounts claimed for each deduction.

Educator Expense Adjustment to Income

  • Educators claim the deduction for up to $250 of out-of-pocket classroom expenses 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.

Form 1040A cannot be used to claim either the tuition and fees deduction or the educator expense deduction.

Whether claiming the extender deductions or not, the IRS reminds taxpayers that a one-time refund of the telephone excise tax on long-distance and bundled service is available on this year’s return. One in three early filers are failing to request this special refund, and although many of them are likely not eligible, others may qualify and not know it. Use the Telephone Excise Tax Refund section on the front page of IRS.gov to learn more about this special refund.

Monday, February 5, 2007

Statement of IRS Commissioner Mark W. Everson on the FY 2008 Budget

Statement of IRS Commissioner Mark W. Everson on the FY 2008 Budget

Feb. 5, 2007

“The president’s 2008 budget request for the IRS, together with the accompanying legislative proposals concerning tax administration, is welcome. They will do much to promote compliance with our tax law. I appreciate the strong support that Secretary Paulson and OMB Director Portman have given for our efforts.”

IRS Budget in Brief FY 2008

Treasury's 2007 "Blue Book" on the Administration's FY 2008 Revenue Proposals

Friday, February 2, 2007

IRS Begins Work on Whistleblower Office; Whitlock Named First Director

IRS Begins Work on Whistleblower Office; Whitlock Named First Director

IR-2007-25, Feb. 2, 2007

WASHINGTON — The Internal Revenue Service today named Stephen A. Whitlock as director of its new Whistleblower Office, where he will be responsible for administering the program designed to receive information that helps uncover tax cheating and to provide appropriate rewards to whistleblowers.

“This is an important new office at the IRS, and Steve brings a strong background in ethics and tax issues to help get this program off to a good start,” said IRS Commissioner Mark W. Everson. “Under Steve’s leadership, we will meet expectations from Sen. Grassley and other supporters to run a robust program.”

During his 27-year government career, Whitlock has led the IRS Office of Professional Responsibility and helped run anti-fraud and abuse programs at the Defense Department.

The IRS Whistleblower Office, which was established by the Tax Relief and Health Care Act of 2006, will process tips received from individuals who spot tax problems in their workplace, while conducting day-to-day personal business or anywhere else they may be encountered.

A reward worth between 15 percent and 30 percent of the total proceeds that IRS collects could be awarded, if the IRS moves ahead based on the information provided.

Whitlock’s office will be responsible for assessing and analyzing incoming tips. After determining their degree of credibility, his office will assign the information to the appropriate IRS office for further investigation.

As program director, Whitlock’s key responsibilities include:

  • Establishing the strategic direction of the program
  • Defining specific goals and operating guidelines
  • Communicating and implementing guidance to ensure the office’s success

Prior to his new appointment, Whitlock served since May 2003 as the Deputy Director of the IRS Office of Professional Responsibility, which administers the regulations governing the practice of attorneys, CPAs, and other tax professionals. From March 1999 until May 2003, he was the director of the IRS Commissioner’s Complaint Processing and Analysis Group.

Before joining the IRS, Whitlock directed several programs at the Defense Department involving the identification, investigation and correction of fraud, waste and abuse. In particular, he directed the operations of the Defense Hotline, which served as the model for Inspector General fraud, waste and abuse hotlines throughout the Executive branch.

Whitlock earned a Bachelor of Arts degree in Political Science from Auburn University, a Juris Doctor degree from Catholic University and a Masters in Business Administration degree from George Mason University.

Thursday, February 1, 2007

Paulson, IRS Launch Campaign to Help Low-Income Taxpayers Take Advantage of Tax Credit, Free Tax Help

Paulson, IRS Launch Campaign to Help Low-Income Taxpayers Take Advantage of Tax Credit, Free Tax Help


IR-2007-24, Feb. 1, 2007

WASHINGTON — Treasury Secretary Henry M. Paulson, Treasurer Anna Escobedo Cabral and IRS Commissioner Mark W. Everson and the IRS’ national partners launched Earned Income Tax Credit (EITC) Awareness Day at a Treasury Department press conference today. The event kicks off a nationwide campaign to inform taxpayers about this important credit for working families and the availability of free tax help.

“The Earned Income Tax Credit helps Americans who work hard but need extra support to make ends meet – people who are often on the first step of the economic ladder, gaining the experience and skills to land a better job and earn a higher income in the future,” said Secretary Paulson. “Our goal is not just to help people get by. Our goal is to help people get ahead.”

More than 150 coalitions and partners across the nation marked EITC Awareness Day with a series of news conferences or news releases promoting this valuable tax credit for low-wage taxpayers. These organizations operate free tax preparation sites for low-income individuals, for seniors and for other eligible taxpayers.

The Treasury officials were joined by partners Mayor Otis Johnson of Savannah, Georgia, Brian Gallagher, chief executive officer of United Way of America, Elsie Meeks, executive director of First Nations Oweesta Corporation and Linda Eatmon-Jones, coordinator, DC CASH, for the kickoff event at the Treasury Department.

The Earned Income Tax Credit provides a refundable credit of up to $4,536 for eligible families. EITC claimants are eligible for free tax preparation services provided at 12,000 volunteer sites nationwide or they can also link to Free File through IRS.gov if they wish to prepare their own return.

In addition to providing help claiming the EITC, these free tax sites can help qualified taxpayers request their one-time telephone excise tax credit.

“The IRS wants all eligible taxpayers to claim the EITC. Trained volunteers working at these free tax preparation sites can help ensure that taxpayers receive all the deductions and credits they are due. And, if you want to do your own taxes, there is always Free File which is available at IRS.gov,” said Commissioner Everson.

Many organizations offering free tax help also are encouraging taxpayers to save a little money or open a bank account. The IRS is helping in this effort by creating a new split-refund program that allows all taxpayers to divide their refund among up to three financial accounts, such as checking, savings and retirement.

“Tax time is an ideal time to think about savings. For many taxpayers, tax refunds are the largest checks they will receive throughout the year, and the new split-refund program gives individuals and families the opportunity to build a nest egg for the future,” said Treasurer Cabral.

During tax year 2005, more than 22 million returns received over $41 billion in EITC. However, the IRS also estimates that as many as 25 percent of eligible taxpayers fail to claim this tax credit.

Eligible people who fail to claim EITC include Spanish speakers, individuals who are self-employed or have service jobs in private households, childless taxpayers, rural residents, and recipients of other types of public assistance such as food stamps.

The credit was created in 1975 in part to offset the burden of Social Security taxes and to serve as a work incentive. The amount of the credit varies but it is generally determined by income and family size. Many states also have a local version of EITC which also can increase a taxpayer’s refund.

Tax preparers and taxpayers can find a wealth of information at IRS.gov. Both can use the EITC Assistant at www.irs.gov/eitc which is an easy-to-use interactive tool to help determine if the taxpayer is qualified for EITC. This step-by-step online program helps answer questions about eligibility, filing status, qualifying children and credit amount. The EITC Assistant also is available in Spanish.

For the 2006 tax year, the maximum credit is $4,536 for a family with two or more children; $2,747 for a family with one child and $412 if the taxpayer does not reside with children.

The maximum amount of earned income allowed is higher for tax year 2006 than it was for 2005. Please see Fact Sheet 2007-13 for all eligibility requirements. Generally, a taxpayer may be able to take the credit for tax year 2006 if the taxpayer:

  • has more than one qualifying child and earns less than $36,348 ($38,348 if married filing jointly),

  • has one qualifying child and earns less than $32,001 ($34,001 if married filing jointly), or

  • does not have a qualifying child and earns less than $12,120 ($14,120 if married filing jointly).

The maximum amount of investment income also increased to $2,800 for tax year 2006.

The IRS reminds tax professionals that they must perform due diligence when preparing an EITC tax return. To help, the IRS created an EITC Tax Preparer Electronic Toolkit which is available at www.eitcfortaxpreparers.com.

In addition to on-line tools, the IRS also produces Publication 596, Earned Income Credit, which explains all the eligibility rules and also includes a worksheet to determine eligibility. The publication is available in English and Spanish.

Related Items:

Free Tax Help Available at Sites Nationwide

Free Tax Help Available at Sites Nationwide


IR-2007-23, Feb. 1, 2007

WASHINGTON — More than 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help to people who earn less than $39,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

“These volunteers help low-income taxpayers meet their filing obligations and claim the Earned Income Tax Credit,” said IRS Commissioner Mark W. Everson. “This is community volunteerism at its best.”

Today, many of these partners and local officials will be hosting news conferences or issuing news releases nationwide to highlight the Earned Income Tax Credit and their free tax preparation programs. The EITC is already the government's largest cash assistance program targeted to low-income Americans. However, not all eligible taxpayers may be aware or claim the credit.

Taxpayers need to bring to the VITA/TCE sites the following items:

  • Photo identification

  • Valid Social Security cards for the taxpayer, spouse and dependents

  • Birth dates for primary, secondary and dependents on the tax return

  • Current year’s tax package, if received

  • Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers

  • Interest and dividend statements from banks (Forms 1099)

  • A copy of last year’s federal and state returns, if available

  • Bank routing numbers and account numbers for direct deposit

  • Other relevant information about income and expenses

  • Total paid for day care

  • Day care provider's identifying number

To file taxes electronically on a Married Filing Jointly tax return, both spouses must be present to sign the required forms.

Trained community volunteers can help eligible taxpayers with all special credits, such as the Child Tax Credit or Credit for the Elderly. They also can help people claim the $30 to $60 telephone tax refund being offered this year. Individuals with no tax filing requirement should use Form 1040EZ-T to request the one-time only telephone tax refund. Also, many sites have language specialists to assist people with limited English skills.

In addition to free tax return preparation assistance, most sites use free electronic filing (e-filing). Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper — even faster if taxpayers have their refund deposited directly into their bank accounts.

As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 8,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's Internet site.

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council (AFTC) consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. The AFTC oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the EITC guidelines.

If taxpayers owe, they can make a payment April 17 by authorizing an electronic funds withdrawal (direct debit) from a checking or savings account, paying by credit (Discover Card®, American Express®, MasterCard® or VISA® Card), or by check or money order(made out to the United States Treasury) using Form 1040-V, Payment Voucher.

Related Items: