Tuesday, July 31, 2007

Victims of 2005 Hurricanes Get Additional Year to Sell Vacant Land

Victims of 2005 Hurricanes Get Additional Year to Sell Vacant Land

IR-2007-134, July 31, 2007

WASHINGTON — The Internal Revenue Service is extending for an additional year the time limit within which victims of Hurricanes Katrina, Rita and Wilma have to sell vacant land that they had owned and used as part of their principal residence that was destroyed as a result of the hurricanes.

Federal tax rules state that individuals have two years within which to sell the vacant land to be able to take advantage of the exclusion on gain from the sale of a principal residence.

Given that the two-year anniversary is approaching for victims of the 2005 hurricanes, the IRS has decided to provide additional time to take advantage of the exclusion. The IRS is granting relief by declaring that these victims now have three years after the destruction of their principal residence as a result of the hurricanes to sell their vacant land that they had owned and used as part of the principal residence.

IRS.gov has specific information on this provision for disaster victims. IRS.gov also has more information on the tax relief extended to victims of hurricanes Katrina, Rita and Wilma.

Wednesday, July 25, 2007

Hydrogen-Powered Honda Vehicle Qualifies for Tax Credit

Hydrogen-Powered Honda Vehicle Qualifies for Tax Credit

IR-2007-133, July 25, 2007

WASHINGTON — The Internal Revenue Service acknowledged the certification by American Honda Motor Company, Inc, that one of its vehicles meets the requirements of the Alternative Motor Vehicle Credit as a qualified fuel cell vehicle.

Purchasers of the 2005 and 2006 Honda FCX, which is only capable of operating on hydrogen, may rely on their certification concerning the vehicle’s qualification for the Qualified Fuel Cell Motor Vehicle Credit.

The credit amount for the 2005 and 2006 Honda FCX is $12,000.

Thursday, July 19, 2007

IRS Releases Interim Report on Tax-Exempt Hospitals and Community Benefit Project

IRS Releases Interim Report on Tax-Exempt Hospitals and Community Benefit Project

IR-2007-132, July 19, 2007

WASHINGTON — The Internal Revenue Service released an interim report summarizing responses from almost 500 tax-exempt hospitals to a May 2006 questionnaire about how they provide and report benefits to the community. Providing community benefit is required for hospitals seeking and retaining tax-exempt status as charities.

Today’s report on the hospital compliance project contains preliminary information on the way nonprofit hospitals, which comprise one of the largest components of the tax-exempt sector, responded to questions about how they provide community benefit. The IRS is still in the process of analyzing the reported data.

“This is an important first step in our ongoing review of community benefit and tax-exempt hospitals,” said Lois G. Lerner, director of the IRS’s Exempt Organizations division. “As the report states, this project gives the IRS a unique and valuable insight into the manner in which hospitals report on and attempt to meet the community benefit standard.”

According to the report, nearly all hospitals reported that they provided various types of community benefit that were the subject of the questionnaire. Although 97 percent of responding hospitals said they have a written uncompensated care policy, no uniform definition of what constitutes “uncompensated care” emerged from the responses. Further, there appear to be significant differences in the way other components of community benefit are reported.

“The lack of consistency or uniformity in classifying and reporting uncompensated care and various types of community benefit often makes it difficult to assess whether a hospital is in compliance with current law,” Lerner said. “That’s one reason more analysis is needed.”

While the interim report summarizes but does not analyze the information reported by the hospitals, the IRS’s hospital project team did recommend developing a separate Form 990 schedule for hospitals, as a way to address the lack of uniformity in definitions and reporting. A new Schedule H, Hospitals, is part of the recently released discussion draft of that form.

In addition, the hospitals were questioned on how they set and report executive compensation. Additional information will be made available as the IRS completes its analysis of that component of the project.

Related item:

National Taxpayer Advocate Releases Report to Congress; Identifies Priority Challenges and Issues for Upcoming Year

National Taxpayer Advocate Releases Report to Congress; Identifies Priority Challenges and Issues for Upcoming Year

IR-2007-131, July 19, 2007

WASHINGTON — National Taxpayer Advocate Nina E. Olson today delivered a report to Congress that identifies the priority issues the Office of the Taxpayer Advocate will address in the coming fiscal year. Among the key areas of focus will be improving taxpayer services, ensuring that taxpayer rights are protected in the IRS’s private debt collection initiative, and making the IRS’s offer-in-compromise program more accessible for taxpayers who are unable to pay their tax debts in full.

The report also addresses the challenges the IRS is facing because of pressure to close the tax gap quickly. The tax gap represents the difference between the amount of tax owed and the amount of tax collected. “For fiscal year 2008, both the IRS and the Taxpayer Advocate Service (TAS) face similar challenges,” Olson wrote. “The IRS is under scrutiny for its efforts to close the tax gap, while TAS is struggling to address taxpayer difficulties that arise as a result of these very efforts.”

In prior reports to Congress, Olson has identified the tax gap as one of the most serious challenges in tax administration, and she has advanced numerous proposals to help address it. At the same time, she has expressed concern that the IRS may ramp up enforcement excessively and begin to “cut corners” in its treatment of taxpayers if it is pressured to do too much too quickly.

She emphasized that Congress can play an important role in helping to achieve an appropriate balance. “IRS oversight should not just be limited to urging the IRS to collect more tax revenue,” Olson wrote. “Even as Congress directs the IRS to address specific areas of noncompliance, Congress should require the IRS to adopt a long-term research strategy that focuses not only on “closing the tax gap” but also on understanding what it takes to encourage taxpayers to be voluntarily compliant and how to change taxpayer behavior.”

The Advocate’s report, which is required by law, sets out the objectives of the Office of the Taxpayer Advocate for the upcoming fiscal year and provides substantive analysis of issues as well as statistical information. The report identifies three areas for particular emphasis in FY 2008:

1. Improve Taxpayer Services. In April 2007, the IRS published a strategic plan detailing its taxpayer service priorities for the next five years. The report, known as the Taxpayer Assistance Blueprint or “TAB,” was developed in response to an Appropriations directive. OIson was a participant in the development of the TAB, and she generally praised the product. She notes, however, that the TAB is only a “first step” because the IRS still faces challenges in implementing the plan. She urges the IRS to conduct further research on taxpayer needs and preferences and to maintain a commitment to providing face-to-face service for taxpayers who need it. Working with the IRS to implement the TAB will be a top TAS priority in FY 2008.

2. Ensure that Taxpayer Rights Are Protected in the IRS’s Private Debt Collection Initiative. In 2006, the IRS began to use private debt collection agencies to collect certain tax debts. Olson has previously stated her opposition to the initiative, citing risks to taxpayer privacy and confidence in the federal tax system. However, her office has worked closely with the IRS to ensure that taxpayer rights are protected to the maximum extent possible. Her office will continue to work closely with the IRS toward this end in the coming year.

3. Make the IRS’s Offer In Compromise Program Accessible for Appropriate Taxpayers. A taxpayer who is unable to pay his or her tax liability in full may seek to compromise the debt by submitting an “offer in compromise.” The offer program is a good deal for both the government and the taxpayer. The government benefits because it frequently collects more than it would in the absence of the program and the taxpayer is induced to pay taxes on time and in full in the future; a taxpayer whose offer is accepted must remain fully compliant for five years or face reinstatement of the compromised tax debt. The taxpayer benefits because he or she is able to make a fresh start. Legislation enacted in 2006 requires taxpayers who submit “lump sum” offers to make a down payment of 20 percent of the amount of the offer with the submission. To determine the impact of this requirement on bona fide offers, TAS reviewed a sample of 414 offers that the IRS accepted prior to the enactment of the down-payment requirement. In about 70 percent of those cases, the taxpayer did not have access to sufficient liquid funds to make the required down payment. The National Taxpayer Advocate will work with the IRS and the Treasury Department to try to improve the accessibility of the offer program.

The report includes an update on a review the Office of the Taxpayer Advocate conducted on IRS compliance with Freedom of Information Act (FOIA) and related transparency guidelines. The results of the review were published in the National’s Taxpayer Advocate’s 2006 year-end report to Congress. In the current report, the National Taxpayer Advocate states that the IRS has made major strides toward improving the transparency of its procedures.

The report also describes the challenges TAS itself is facing due to rapidly growing case inventories and staffing declines. By statute, TAS is required to maintain at least one office in every state, and it currently maintains 75 offices. TAS assists taxpayers who either are experiencing significant economic harm or are having difficulty resolving their problems through normal IRS processes. From FY 2004 through FY 2006, TAS’s case receipts have grown by 43 percent, while the number of case advocates available to work those cases has declined by 8 percent. The report states that TAS has been making process changes to achieve efficiencies but faces significant challenges in the next few years to continue to deliver high quality taxpayer service to help taxpayers resolve their tax problems.

The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report is submitted mid-year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the 10 tax issues most frequently litigated in the courts during the prior year, and make administrative and legislative recommendations to resolve taxpayer problems.

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 its 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 the IRS website at IRS.gov.

Related link:

Monday, July 16, 2007

New Electronic PIN Signature Requirement Begins in 2008

New Electronic PIN Signature Requirement Begins in 2008

IR-2007-130, July 16, 2007

WASHINGTON — The Internal Revenue Service will simplify the signature process for electronically filed individual income tax returns submitted by tax practitioners. The simplification eliminates the need for a paper signature document to be sent to the IRS in support of electronically filed tax returns.

Beginning with the 2008 filing season, tax practitioners can e-file individual income tax returns only if the returns are signed electronically using one of two methods: either a Self-Select Personal Identification Number (PIN) or a Practitioner PIN. A Self-Select PIN allows taxpayers to electronically sign their e-filed return by selecting a five-digit PIN. A Practitioner PIN is used when a taxpayer authorizes an Electronic Return Originator (ERO) to input an electronic signature on behalf of the taxpayer.

Practitioner PINs require the use of Form 8879, IRS e-file Signature Authorization, which is retained by the ERO.

“Nearly 90 percent of tax professionals already use electronic signatures to sign returns,” Acting IRS Commissioner Kevin M. Brown said. “It’s the right time to take the next step toward truly paperless filing.”

Out of some 55 million e-filed returns that have come from tax professionals this year, more than 49 million used the Self-Select PIN or the Practitioner PIN. Overall, more than 77 million individual tax returns have been e-filed so far this year.

The change will simplify tracking, verification and follow-up on the paper signature documents, which were required for tax returns that did not use an electronic signature.

Tax practitioners will no longer submit a paper signature for e-filed returns by using Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return. Instead, a newly designed Form 8453 will be used to transmit supporting paper documents that are required to be submitted to the IRS with e-filed returns. The new Form 8453 will be released later for use during the 2008 filing season.

Thursday, July 12, 2007

IRS to Notify Small Tax-Exempt Organizations of New Information Reporting Requirement

IRS to Notify Small Tax-Exempt Organizations of New Information Reporting Requirement

IR-2007-129, July 12, 2007

WASHINGTON — The Internal Revenue Service today announced that it began mailing educational letters this month to more than 650,000 small tax-exempt organizations that may be required to submit a new annual notice, Form 990-N, “Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.”

IRS expects to mail the letters over a period of several months, finishing in December.
With the enactment of the Pension Protection Act of 2006 (PPA), the majority of small tax-exempt organizations are now required to submit the e-Postcard. Previously, tax-exempt organizations with gross receipts of $25,000 or less were not required to submit information returns. The first e-Postcards are due in calendar year 2008. The IRS intends to have an option available for free electronic submission of the e-Postcard.

“We’re sending these educational letters to all the small exempt organizations in our records because we want to make sure they all know about the new requirement,” said Lois G. Lerner, director of the IRS Exempt Organizations division. “The new e-Postcard reporting requirement is simple and straightforward, but organizations shouldn’t ignore it, or they risk losing their tax-exempt status.”

Any organization that fails to meet its annual reporting requirement for three consecutive years automatically loses its tax-exempt status under the new law. An organization that wants to regain its exempt status will then have to reapply for recognition as a tax-exempt organization.

Short, Easy, Free and Electronic

“The IRS calls the new form an e-Postcard because it is short, easy and electronic,” Lerner said. “And organizations will be able to submit it free of charge.”

The e-Postcard requires small organizations to provide a legal name and mailing address, any other names used, a Web address if one exists, the name and address of a principal officer and a statement confirming the organization’s annual gross receipts are normally $25,000 or less.

In addition to sending out educational letters, IRS is encouraging everyone –– individual volunteers, tax practitioners and larger organizations –– to spread the word about the new e-Postcard reporting requirement.

“People do a lot to help their communities by volunteering their time and money to local charities. We're asking them to also offer a helping hand by making sure that charities know about the law change," Lerner said. "We don’t want those organizations to lose their tax-exempt status because they didn’t know about the new reporting requirement.”

The IRS is developing a free reporting system for the e-Postcard and an application to make the information available to the public on IRS.gov. Information about these systems will be announced as soon as it becomes available.

Further details, including frequently asked questions and a copy of the educational letter, are available in the charities and non-profits section of IRS.gov.

Electronic Excise Tax Filing Is Coming; IRS Will Accept Paper Forms 2290 in Interim

Electronic Excise Tax Filing Is Coming; IRS Will Accept Paper Forms 2290 in Interim

IR-2007-128, July 12, 2007

WASHINGTON — The Internal Revenue Service will add three excise tax forms this year to the ever-expanding list of federal tax returns and schedules that can be filed electronically.

“Electronic filing is a key component to modernizing our tax system,” IRS Acting Commissioner Kevin M. Brown said. “Expanding e-file opportunities to include excise tax returns will help improve service to taxpayers using these forms.”

The 2007 tax filing season set a number of electronic records, highlighted by more than 77 million electronically-filed individual tax returns.

IRS expects to receive the first electronically-filed excise tax return this summer, when Form 2290, Heavy Highway Vehicle Use Tax Return, becomes the first available excise tax return that can be e-filed. Last year, more than 575,000 Forms 2290 were filed with the IRS.

As the IRS begins implementation of electronic filing for excise tax returns later this year, taxpayers may continue to file paper Forms 2290, including those reporting 25 or more vehicles. IRS will issue further guidance regarding the applicable tax code section, IRC section 4481(e).

Form 720, Quarterly Federal Excise Tax Return, and Form 8849, Claim for Refund of Excise Taxes, will be available to e-file later this year.

Additional information about Electronic Excise is available.

Related Items:

Monday, July 9, 2007

Chief Counsel Seeking Comment on Gift Tax Consequences of Trusts Employing Distribution Committee

Chief Counsel Seeking Comment on Gift Tax Consequences of Trusts Employing Distribution Committee

IR-2007-127, July 9, 2007

WASHINGTON — The Internal Revenue Service announced today that it is reconsidering a series of private letter rulings (PLRs) issued by the Office of the Associate Chief Counsel, Passthroughs & Special Industries.

The PLRs address, in part, the gift tax consequences under sections 2511 and 2514 of the Internal Revenue Code of trusts that utilize a distribution committee consisting of trust beneficiaries who direct distributions of trust income and corpus. It has come to the Office of Chief Counsel’s attention that the conclusions in the PLRs regarding the application of section 2514 may not be consistent with Rev. Rul. 76-503, 1976-2 C.B. 275, and Rev. Rul. 77-158, 1977-1 C.B. 285. Accordingly, the Office of Chief Counsel is requesting comments as to whether the conclusions in these PLRs regarding section 2514 can be reconciled with the revenue rulings.

These PLRs involve a situation where trust distributions are made at the unanimous consent of a distribution committee that consists of trust beneficiaries, or at the discretion of an individual committee member with the consent of the grantor. If a distribution committee member resigns or dies, the committee member is replaced with another person. The PLRs conclude that the distribution committee members have substantial adverse interests to each other for purposes of section 2514. Therefore, they do not possess general powers of appointment over the trust. Accordingly, distributions from the trust will not be subject to gift tax with respect to the distribution committee members.

However, the holdings in Rev. Rul. 76-503 and Rev. Rul. 77-158 indicate that because the committee members are replaced if they resign or die, they would be treated as possessing general powers of appointment over the trust corpus. It has been suggested that the facts presented in the PLRs are distinguishable from the revenue rulings because in the PLRs, the grantor’s gift to the trust is incomplete since the grantor retains a testamentary special power of appointment. See, however, section 25.2514-1(e), Example (1) of the Gift Tax Regulations, and Rev. Rul. 67-370, 1967-2 C.B. 324.

Before the Office of Chief Counsel takes any action with respect to the PLRs, the Office of the Associate Chief Counsel, Passthroughs & Special Industries is requesting comments regarding the question of whether the distribution committee members possess general powers of appointment under section 2514. The comments could also include suggestions for a substantially similar trust structures that would achieve the intended income, gift, and estate tax objectives of the transactions described in the PLRs.

Comments should be provided within ninety (90) days of the date of this news release. Send written comments to: Internal Revenue Service, Attn: CC:PA:LPD:PR (CC:PSI:4), room 5203, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (CC:PSI:4), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave, N.W., Washington, DC, or sent electronically, via Notice.comments@irscounsel.treas.gov (indicate CC:PSI:4)

Friday, July 6, 2007

Mazda Vehicles Certified As Qualified Hybrid Vehicles

Mazda Vehicles Certified As Qualified Hybrid Vehicles

IR-2007-126, July 6, 2007

WASHINGTON — The Internal Revenue Service has acknowledged the certification by Mazda Motor of America, Inc., that several of its Model Year 2008 vehicles meet the requirements of the Alternative Motor Vehicle Credit as qualified hybrid motor vehicles.

The credit amount for the certified 2008 model year hybrid vehicles are:

  • Mazda Tribute 2WD Hybrid — $3,000
  • Mazda Tribute 4WD Hybrid — $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.

Thursday, July 5, 2007

Revised Innocent Spouse Form Now Available

Revised Innocent Spouse Form Now Available

IR-2007-125, July 5, 2007

WASHINGTON — The Internal Revenue Service today announced a redesigned Form 8857, Request for Innocent Spouse Relief, that will help reduce follow-up questions and reduce the burden on taxpayers.

The form will ask more questions initially, but collecting critical information early in the process will mean faster processing of the request. Previously, Form 12510, Questionnaire for the Requesting Spouse, was separate from Form 8857. The redesign will combine and streamline the two forms. The redesigned form will be easier to understand and complete and will help educate taxpayers about the process.

The new design will eliminate an estimated 30,000 follow-up letters annually. This will result in reduced burden, quicker responses to taxpayers and less cost to the government. The revisions were based on suggestions from an IRS process improvement team led by the Office of Taxpayer Burden Reduction.

When a taxpayer files a joint return, both spouses are jointly and individually responsible for the tax. Innocent Spouse relief provides an opportunity for a spouse to be relieved from the joint debt under certain circumstances. If a taxpayer believes that only his or her spouse or former spouse should be responsible for the tax, the taxpayer can request relief from the tax liability.

Related Items: