Tuesday, December 30, 2008

Where To Make Your 1040-ES Payments;Addresses

Form 1040-Estimated Tax filing addresses for individuals living within the 50 states
If you live in ...
then use this address ...

Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia:
Internal Revenue ServiceP.O. Box 105225Atlanta, GA 30348-5225
District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, Vermont:
Internal Revenue ServiceP.O. Box 37001Hartford, CT 06176-0001
New Jersey, New York, Pennsylvania:
Internal Revenue ServiceP.O. Box 37007Hartford, CT 06176-0007
Kentucky, Louisiana, Mississippi, Tennessee, Texas:
Internal Revenue ServiceP.O. Box 1300Charlotte, NC 28201-1300
Alaska, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington:
Internal Revenue ServiceP.O. Box 510000San Francisco, CA 94151-5100
Arkansas, Connecticut, Delaware,Indiana, Michigan, Missouri, Ohio, Rhode Island, West Virginia:
Internal Revenue ServiceP.O. Box 970006St. Louis, MO 63197-0006
Arizona, Idaho, Illinois, Iowa, Kansas, Minnesota, Montana, Nebraska, North Dakota, Oklahoma, South Dakota, Wisconsin, Wyoming:
Internal Revenue ServiceP.O. Box 802502Cincinnati, OH 45280-2502

Negotiations with the IRS and Self Emplloyment

Negotiations with the IRS are difficult to establish as a self-employed individual if you have neglected to make Estimated Tax payments within that year. It behouves you to make payments four times a year by April,15,June 15,September 15, December 15. You can either make your entire payment by April 15, or in four installment payments.

When negotiating with the IRS, a licensed professional can have estimated tax payments factored in as a monthly expense, which will help to lower your Monthly Disposable Income considerably. If you are not currently making Estimated Tax Payments, in order for the IRS to negotiate a resoluiton, they will require you to do so. The IRS deems you as being complaint going forward, placing their faith that will stay current on paying your medicare, social security payments.

Questions About Dependents

There are so many questions centering around dependents and what is needed to prepare returns. I was asked the question today, for the year 2003, could a taxpayer claim their son who lived under 6 months and earned over $7000 in that tax year, would they receive a tax credit?

The answer is no! In order for a taxpayer to claim someone as a dependent, they have to reside in the home with you for at least six months, and earn less than $7,000 in income for that year.

However, if a taxpayer was taking care of a parent that could not earn income, then they could count for them as a dependent but not as Head Of Household.

If you would like to learn more about dependents, visit http://www.irs.gov/

Thursday, December 25, 2008

IRS’ January Tax Talk Today Focuses on Filing Season

The Internal Revenue Service’s next Tax Talk Today program, “Getting Ready for Filing Season 2009 -- Individual and Business,” will be Tuesday, Jan. 13, at 2 p.m. This special, 100-minute program will give tax preparers a head start on the 2009 filing season.The extended program will discuss updates to tax forms, the latest tax law changes and IRS processing issues to assist tax preparers. Panelists will offer tips on how to avoid common errors that can cost preparers and their clients time and money. Two continuing education credits will be offered for January’s program.

Tax Talk Today is a webcast aimed at educating tax and payroll professionals on the most current and complex tax issues. Tax professionals are encouraged to watch and submit questions. To access the webcast at no charge, viewers can register online at taxtalktoday.com.

The next Tax Talk Today program, “Surviving the IRS Audit,” is scheduled for Tuesday, March 10.

Paying Tax On Gifts

I had a conversation with a taxpayer the other day concerning what they should do in regards to their tax liability. Apparently a friend loaned them some money to go into business together and the business went under. Therefore the partner that loaned him the money was upset and 1099'd the other partner. What the loaner should have done was paid the tax on the money loaned to the individual versus insisting on payee assuming responsibility for it.

This taxpayer now owes liabilities up to $140,000 dating back from 1993-1994. Some $40,000 in penalties and interest have accrued since then. What I advised him to do is get into an Installment Agreement and pay this until the CSED (Collection Statuatory Expiration Dates)dates run out. What the IRS does not inform you of is the time they have to collect on you. If this taxpayer can hold on till the CSED dates run out, he will no longer be responsible of the debt.

If you need taxpayer assistance, don't hesitate to call a licensed individual that can help you.

Sunday, December 21, 2008

The Truth About Frivolous Tax Arguments

Some assert that they are not required to file federal tax returns because
the filing of a tax return is voluntary. Proponents point to the fact that the
IRS itself tells taxpayers in the Form 1040 instruction book that the tax
system is voluntary. Additionally, the Supreme Court’s opinion in Flora v.
United States
, 362 U.S. 145, 176 (1960), is often quoted for the
proposition that "[o]ur system of taxation is based upon voluntary
assessment and payment, not upon distraint."
The Law: The word “voluntary,” as used in Flora and in IRS publications,
refers to our system of allowing taxpayers initially to determine the correct
amount of tax and complete the appropriate returns, rather than have the
government determine tax for them from the outset. The requirement to
file an income tax return is not voluntary and is clearly set forth in
sections 6011(a), 6012(a
Any taxpayer who has received more than a statutorily determined amount
of gross income is obligated to file a return. Failure to file a tax return
could subject the non-complying individual to criminal penalties, including
fines and imprisonment, as well as civil penalties. In United States v.
Tedder, 787 F.2d 540, 542 (10th Cir. 1986), the court clearly states,
“although Treasury regulations establish voluntary compliance as the
general method of income tax collection, Congress gave the Secretary of
the Treasury the power to enforce the income tax laws through involuntary
collection . . . . The IRS’ efforts to obtain compliance with the tax laws are
entirely proper.” The IRS issued Revenue Ruling 2007-20, 2007-14 I.R.B.
863, warning taxpayers of the consequences of making this frivolous

2009 Inflation Adjustments Widen Tax Brackets and Expand Tax Benefits

For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
*The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
*The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
*Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
*The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
*The annual gift exclusion rises to $13,000, up from $12,000 in 2008

IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell

The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner. “We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

Monday, December 15, 2008

Gift Expenses and The IRS

If you give gifts in the course of your trade or business, you can deduct all or part of the cost. This section explains the limits and rules for deducting the costs of gifts.

$25 limit. You can deduct no more than $25 for business gifts you give directly or indirectly to any one person during your tax year. A gift to a company that is intented for the eventual personal use or benefit of a particular person or limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who recieve the gift.

If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use.

If you and your spouse give gifts, both of you are treated as one taxpayer. It does not matter whether you have separate business's, are separately employed, or whether each of has an independent connection with the rescipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

Incedental Costs:
Incedental costs, such as engraving on jewelry , or packing, insuring, nd mailing, are generally not included in determining the cost of a gift for the purpose of the $25.

Sunday, December 14, 2008

Education Credtis (Hope & Lifetime Learning Credits)

You may be able to take the credits if you, your spouse, or a
dependent you claim on your tax return was a student enrolled
at or attending an eligible educational institution. The credits are
based on the amount of qualified education expenses paid for
the student in 2007 for academic periods beginning in 2007 and
the first 3 months of 2008.

Generally, qualified education expenses paid on behalf of the
student by someone other than the student (such as a relative)
are treated as paid by the student. Also, qualified education
expenses paid (or treated as paid) by a student who is claimed
as a dependent on your tax return are treated as paid by you.
Therefore, you are treated as having paid expenses that were
paid from your dependent student’s earnings, gifts, inheritances,
savings, etc.

You cannot take the education credits if any of the following
* Your filing status is married filing separately.
* Your adjusted gross income on Form 1040, line 38, or Form
1040A, line 22, is (a) $114,000 or more if married filing jointly, or
(b) $57,000 or more if single, head of household, or qualifying
* You are claimed as a dependent on another person’s tax
return, such as your parent’s return (but see the Note above).
* You (or your spouse) were a nonresident alien for any part of
2007 and the nonresident alien did not elect to be treated as a
resident alien.

Do You Qualify For An Energy Credit?

You may be able to take these credits if you made
energy saving improvements to your home located in the United States in 2007. For credit purposes, costs are treated as being paid when the original installation of the item is completed, or in the case of costs connected with the construction or reconstruction of your home, when your original use of the constructed or reconstructed home begins. If less than 80% of the
use of an item is for nonbusiness purposes, only that portion of the costs that are allocable to the
nonbusiness use can be used to determine the credit.
Home. A home is where you lived in 2007 and may include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards.You must reduce the basis of your home by the amount of any credits allowed.

Main home. Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness,education, business, military service, or vacation, will not change your main home.
Special rules. If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation.
Subsidized energy financing. Any amounts provided for by subsidized energy financing cannot be used to figure the credits. This is financing provided under a federal, state, or local program, the principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.
Nonbusiness Energy Property Credit
You may be able to take a credit equal to the sum of:
1. 10% of the amount paid or incurred for qualified
energy efficiency improvements installed during 2007,
2. Any residential energy property costs paid or
incurred in 2007.
c A total combined credit limit of $500 for all tax years
after 2005.
Qualified energy efficiency improvements. Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2007 located in the United States if these components are new and can be expected to remain in use for at least 5 years. c Any insulation material or system that is specifically and primarily designed to reduce the heat loss or gain of a home when installed in or on such home.

a. Exterior windows (including certain storm windows
and skylights).
b. Any metal roof installed on a home, but only if this roof has appropriate pigmented coatings that are specifically and primarily designed to reduce the heat gain of the home. For purposes of figuring the credit, do not include amounts paid for the onsite preparation, assembly, or
original installation of the property.
c. A combined credit limit of $200 for windows for all
tax years after 2005.

Retirement Plans for Public Schools and Exempt Organizations Get Extension on Time to Complete Written Plans

The IRS issued a notice today announcing relief for certain retirement plans that do not have a written plan in place by January 1, 2009. The new guidance is for retirement plans covering employees at public schools, colleges and universities, and other tax exempt organizations. These retirement plans are often referred to as 403(b) plans after the relevant section in the tax code.
The IRS is extending the deadline for plan sponsors to adopt new written plans or amend existing plans to satisfy the requirement of the final 403(b) regulations because of difficulties expressed by numerous plan administrators in meeting the current deadline of January 1, 2009. This extension will give plan sponsors additional time to put their plan documents in place.
The IRS will treat these plans as meeting the requirements of 403(b) and the regulations during the 2009 calendar year if:

*By December 31, 2009, the plan sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) and the regulations.
*During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the related regulations.
*By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan.

IRS Drops Interest Rate First Qtr-2009

WASHINGTON – The Internal Revenue Service today announced in Revenue Ruling 2008-54 that interest rates for the calendar quarter beginning Jan. 1, 2009 will drop by one percentage point. The new rates will be:
Five (5) percent for overpayments [four (4) percent in the case of a corporation];
Five (5) percent for underpayments;
Seven (7) percent for large corporate underpayments; and
Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Service, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced today are computed from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding.

Tuesday, December 9, 2008

IRS Offers Tips For End Of Year Donations

Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2008. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2008 as long as they are mailed this year.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under “ Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2008 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value.Additional rules apply for a contribution of $250 or more.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

Monday, December 8, 2008

Terms Of Currently Not Collectible Status

I had a client email me ask me what Currently Not Collectible actually meant. So many taxpayers with outstanding tax liability have no idea that IRS can stop collections on your liability. However, CNC Status is not as easy to obtain as it used to be. The IRS is cracking down on the qualifications for CNC. The IRS's decision is predicated on the following requirements:

1. The IRS has to deem you as having no MDI (Monthly Disposable Income) which is your income less your monthly expenses,

2. No liquid assets to pay yout liability

3. Automatic CNC will be approved if the taxpayer is deceased with no collection potential from the deceadent estate or no collection potential for estate taxes

4. CNC approved a corporation or LLC is classified as a partnership or association taxable as a corporation remains in business and is current but is unable to pay back taxes.

Also when a corporate income tax liability owed by a financial institution certified as insolvent by the Officer of the Controller of the Currency or the Office of Thrift Supervision

5. A taxoayer is deployed to a combat zone

6. When collection of the liabiltiy would create an undue hardship for taxpayers by leaving them unable to meet necessary living expenses.

According to the IRS approval, they will cease payments of taxes for at least 112-18 months, when they will review your current financial stability for re-approval of CNC or the induction back into collections for ability to pay (closing code).

When the time comes to re-evaluate your case, the IRS will default your CNC status if they can't locate you, and could possibly levy you. The IRS will annually send you a statement balance (CP 89) around 12-18 for case review. They basically want to see if anything has changed about your current financial state.

A tax lien will always be filed with CNC status.

IRS Timeline: From The Seventies Till Now

1972 - The Alcohol, Tobacco and Firearms Division separated from the IRS to become the independent Bureau of Alcohol, Tobacco and Firearms.
1974 - Congress passed the Employee Retirement and Income Security Act, which gave regulatory responsibilities for employee benefit plans to the IRS.
1986 - Limited electronic filing began. President Reagan signed the Tax Reform Act, the most significant piece of tax legislation in 30 years. It contained 300 provisions and took three years to implement. The Act codified the federal tax laws for the third time since the Revenue Act of 1918.
1992 - Taxpayers who owed money were allowed to file returns electronically.
1998 - Congress passed the IRS Restructuring and Reform Act, which expanded taxpayer rights and called for reorganizing the agency into four operating divisions aligned according to taxpayer needs.
2000 - IRS enacted reforms, ending its geographic-based structure and instituting four major operating divisions: Wage and Investment, Small Business/Self-Employed, Large and Mid-Size Business and Tax Exempt and Government Entities. It was the most sweeping change at the IRS since the 1953 reorganization.
2001 - IRS administered a mid-year tax refund program to provide advance payments of a tax rate reduction.
2003 - IRS administered another mid-year refund program, this time providing an advance payment of an increase in the Child Tax Credit. Electronic filing reached a new high - 52.9 million tax returns, more than 40 percent of all individual returns.

The Baby Boomer Years and The IRS

1931 - The IRS Intelligence Unit used an undercover agent to gather evidence against gangster Al Capone. Capone was convicted of tax evasion and sentenced to 11 years.
1933 - Prohibition repealed. IRS again assumed responsibility for alcohol taxation the following year and for administering the National Firearms Act. Later, tobacco tax enforcement was added.
1942 - The Revenue Act of 1942, hailed by President Roosevelt as "the greatest tax bill in American history," passed Congress. It increased taxes and the number of Americans subject to the income tax. It also created deductions for medical and investment expenses.
1943 - Congress passed the Current Tax Payment Act, which required employers to withhold taxes from employees' wages and remit them quarterly.
1944 - Congress passed the Individual Income Tax Act, which created the standard deductions on Form 1040.
1952 - President Truman proposed his Reorganization Plan No. 1, which replaced the patronage system at the IRS with a career civil service system. It also decentralized service to taxpayers and sought to restore public confidence in the agency.
1953 - President Eisenhower endorsed Truman's reorganization plan and changed the name of the agency from the Bureau of Internal Revenue to the Internal Revenue Service.
1954 - The filing deadline for individual tax returns changed from March 15 to April 15.
1961 - The Computer Age began at IRS with the dedication of the National Computer Center at Martinsburg, W.Va.
1965 - IRS instituted its first toll-free telephone site.

IRS Timeline: The Earlier Years

1862 - President Lincoln signed into law a revenue-raising measure to help pay for Civil War expenses. The measure created a Commissioner of Internal Revenue and the nation's first income tax. It levied a 3 percent tax on incomes between $600 and $10,000 and a 5 percent tax on incomes of more than $10,000.
1867 - Heeding public opposition to the income tax, Congress cut the tax rate. From 1868 until 1913, 90 percent of all revenue came from taxes on liquor, beer, wine and tobacco.
1872 - Income tax repealed.
1894 - The Wilson Tariff Act revived the income tax and an income tax division within the Bureau of Internal Revenue was created.
1895 - Supreme Court ruled the new income tax unconstitutional on the grounds that it was a direct tax and not apportioned among the states on the basis of population. The income tax division was disbanded.
1909 - President Taft recommended Congress propose a constitutional amendment that would give the government the power to tax incomes without apportioning the burden among the states in line with population. Congress also levied a 1 percent tax on net corporate incomes of more than $5,000.
1913 - As the threat of war loomed, Wyoming became the 36th and last state needed to ratify the 16th Amendment. The amendment stated, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." Later, Congress adopted a 1 percent tax on net personal income of more than $3,000 with a surtax of 6 percent on incomes of more than $500,000. It also repealed the 1909 corporate income tax. The first Form 1040 was introduced.
1918 - The Revenue Act of 1918 raised even greater sums for the World War I effort. It codified all existing tax laws and imposed a progressive income-tax rate structure of up to 77 percent.
1919 - The states ratified the 18th Amendment, barring the manufacture, sale or transport of intoxicating beverages. Congress passed the Volstead Act, which gave the Commissioner of Internal Revenue the primary responsibility for enforcement of Prohibition. Eleven years later, the Department of Justice assumed primary prohibition enforcement duties.

Tuesday, December 2, 2008

What Does An Employer Do After A Lock In Letter Has Been Issued

As an employer, after I lock in withholding on an employee based on a lock-in letter from the IRS, what do I do if I receive a revised Form W-4 from the employee?A4: After the receipt of a lock-in letter, you must disregard any Form W-4 that decreases the amount of withholding. The employee must submit for approval to the IRS any new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee should send the Form W-4 and statement directly to the address on the lock-in letter. The IRS will notify you to withhold at a specific rate if the employee’s request is approved. However, if, at any time, the employee furnishes a Form W-4 that claims a number of withholding allowances less than the maximum number specified in the lock-in letter, the employer must increase withholding by withholding tax based on that Form W-4.


In the past, as an employer, I was required to submit all Forms W-4 that claimed complete exemption from withholding (when $200 or more in weekly wages were regularly expected) or claimed more than 10 allowances. What Forms W-4 do I now have to submit to the IRS?A1: Employers are no longer required to routinely submit Forms W-4 to the IRS. However, in certain circumstances, the IRS may direct you to submit copies of Forms W-4 for certain employees in order to ensure that the employees have adequate withholding. You are now required to submit the Forms W-4 to IRS only if directed to do so in a written notice or pursuant to specified criteria set forth in future published guidance.

If a taxpayer has tax liability and trying to get into a resolution, the IRS may require the taxpayer to change their withholdings. If the client refuses to do so, the IRS will enforce this action with a "lock in letter" to their employer. Consequently, the taxpayer's withholdings are rediced to zero, maximizing the highest amount if income tax deducted per pay period.

Abated Interest? Is There Such A Thing?

So many taxpayers are convinced that the IRS will abate interest. Unfortunately the only reason why the IRS would abate interest, would be due to their error or neglagance. If an error occured on the taxpayers part, then in no instance would they be accountable for the error. The IRS takes great pride on not making mistakes and where they are mistakes made, the IRS will do a proctological exam on the emplied error ( depending on the value of the error) before issuing a refund. On the other hand, penalty abatement is more feeseable but it to has its miticulous requirements before abating. Reason's would be as followed:

*Severe medical condition that would prevent a taxpayer from filing their return

Unfortunately, penalties are difficult to get abated as well, but the IRS will consider a reasonable cause that would benefit a taxpayer in granted.

Requesting Abatement or Refund of Interest Due to IRS Error or Delay
The IRS can abate interest if the interest is caused by IRS errors or delays.
The IRS will abate the interest only if there was an unreasonable error or delay in performing a managerial or ministerial act (defined on this page). The taxpayer cannot have caused any significant aspect of the error or delay. In addition, the interest can be abated only if it relates to taxes for which a notice of deficiency is required. This includes income taxes, generation-skipping transfer taxes, estate and gift taxes, and certain excise taxes. Interest related to employment taxes or other excise taxes cannot be abated. See Pub. 556, Examination of Returns, Appeal Rights, and Claims for Refund, for more information.
Managerial act. The term “managerial act” means an administrative act that occurs during the processing of your case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision regarding the proper application of federal tax law is not a managerial act. See Regulations section 301.6404-2 for more information.
Ministerial act. The term “ministerial act” means a procedural or mechanical act that does not involve the exercise of judgment or discretion and that occurs during the processing of your case after all prerequisites of the act, such as conferences and review by supervisors, have taken place

Tax Break Helps Low- and Moderate-Income Workers Save for Retirement

Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2008 and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements (IRAs) and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2008 tax return. People have until April 15, 2009, to set up a new IRA or add money to an existing IRA and still get credit for 2008. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2009 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:

*Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
*Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009; and
*Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

IRS Announces Two New Appeals Programs

The Internal Revenue Service today announced a two-year test of two programs: the post-Appeals mediation and arbitration procedures for Offer in Compromise (OIC) and Trust Fund Recovery Penalty (TFRP).
Beginning Dec. 1, 2008. for a two-year test period, Appeals will offer post-Appeals mediation and arbitration for OIC and TFRP cases for taxpayers whose appeals are considered at the Appeals office in Atlanta, Ga.; Chicago, Ill.; Cincinnati, Ohio; Houston, Texas; Indianapolis, Ind.; Louisville, Ky.; Phoenix, Ariz.; and San Francisco, Calif.
Under these two alternative dispute resolution programs, the taxpayer or Appeals may request nonbinding mediation. The taxpayer may decline Appeals’ request for mediation. Appeals will evaluate a taxpayer’s request for mediation based on the criteria detailed in Revenue Procedure 2002-44 and Announcement 2008-111. A request for binding arbitration must be made jointly by the taxpayer and Appeals. The mediation and arbitration procedures do not create any additional authority for settlement by Appeals.
During the test period, Appeals employees will advise the taxpayer of the availability of these alternative dispute strategies and the deadline for timely requesting such strategies when a rejection of an OIC is sustained or a proposed TFRP assessment is sustained. An OIC submitted during Collection Due Process (CDP) as an alternative to a Collection action is not eligible for these alternative dispute resolution strategies during the test period.
The Post-Appeals mediation process is available for both legal and factual issues. The mediator’s role is to facilitate settlement negotiations so the parties can reach their own agreement. The mediator does not have settlement authority over any issue.
The Arbitration procedure is available for factual issues only. The arbitrator’s role is to hear both sides of a disputed issue and then render a decision on the specific factual issue being arbitrated. This decision is binding on both parties. However, the arbitrator does not have the authority to decide that the offer in compromise itself must be accepted or that a person is/is not liable for the TFRP under § 6672. Neither party may appeal the decision of the arbitrator or contest the decision in any judicial proceeding.
Complete procedures for initiating a request for post-Appeals mediation or arbitration are in Announcement 2008-111. The agency will seek appropriate Offer in Compromise and Trust Fund Recovery Penalty cases for both post-Appeals mediation and arbitration during the two-year test period in order to evaluate the effectiveness of alternative dispute resolution for these cases.

Thursday, November 27, 2008

Coming Soon: Merchants +Credits Cards=Millions of 1099s

Starting on 2011, credit card issuers will be required to report to the IRS the payments that merchants receive via credit and debit cards. Such payments will be reported on Form 1099 in conjunction with payee statements, which will therefore mandate reporting of that income by the merchant recipient.

This includes direct merchant transactions, as well as transactions such as those managed by PayPal and Bill Me Later, in addition to intermediary merchant-like entities such as EBay who have a hand in the transaction process. This is going to cause big headaches for card issuers when it goes into effect in three years, but no reporting will be necessary for merchants with under 200 payments per year or less than $20,000 in annual credit and debit card sales.

New Law Encourages Cash Donations for Midwest Disaster Relief

Taxpayers who make qualifying cash contributions for disaster relief efforts in the Midwest could benefit from a recently passed law that suspends the percentage-of-income limits that would normally apply when taxpayers deduct the contributions on their 2008 federal tax returns.

Under the Heartland Disaster Tax Relief Act, an individual taxpayer who itemizes deductions may choose to deduct qualifying cash contributions up to 100 percent of his or her adjusted gross income, reduced by deductions for other charitable contributions. Similarly, an electing corporation may deduct qualifying cash contributions up to 100 percent of its taxable income, reduced by deductions for other charitable contributions.

Cash contributions qualify for this special treatment if they are made to a public charity for disaster relief efforts related to certain areas in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska or Wisconsin. The areas must have been declared federal disaster areas on or after May 20 and before Aug. 1 of this year as a result of severe storms, tornados or flooding, and the areas must have been designated to receive individual assistance from the federal government because of the damage resulting from the disasters.

The contributions must be made no later than Dec. 31, 2008. “Cash” includes payments made by check or credit card.

Qualifying cash contributions of more than the amount allowed as a deduction can be carried over and deducted in succeeding tax years, subject to the normal limits. To substantiate the deduction, a taxpayer must obtain from the charity a written acknowledgment that the contribution was or will be used for relief efforts related to one or more of the Midwestern disaster areas.

In addition, deductions by individuals for qualifying contributions are not treated as itemized deductions for purposes of the overall limitation on itemized deductions. This means that, for taxpayers with higher adjusted gross incomes, the deduction for these qualifying contributions is not limited the way other itemized deductions are limited.

Monday, November 24, 2008

2009 Inflation Adjustments Expand Tax Benefits

For 2009, personal exemptions and standard deductions will rise and tax brackets will widen because of inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
The annual gift exclusion rises to $13,000, up from $12,000 in 2008.

President Bush Pardons Man From South Carolina

President Bush pardoned a Travelers Rest man on Monday, more than 12 years after he was convicted of income tax evasion and sentenced to 180 days of home confinement.

Carey C. Hice Sr., 67, said, "I thank Jesus Christ for it. I’m just elated."
Bush pardoned 13 others along with Hice, who paid a $13,000 fine after his 1996 conviction. The crime will be eliminated from Hice’s record.
Hice said he is a chemical company owner, a father of three and grandfather of five with no connections to the Bush administration. "I’m just an average person who never had been in trouble," Hice said.
The new round of White House pardons are Bush’s first since March and come less than two months before he will end his presidency, according to The Associated Press.

Hice said he asked for a pardon without the help of an attorney. He said the attorney he had initially hired either couldn’t or didn’t want to find the papers he needed. The process included an interview with the FBI, Hice said. "It’s not something I dwelled on," he said. "I did my best, told the truth the best I knew it." Under the Constitution, the president’s power to issue pardons is absolute and cannot be overruled.

Taxpayer's Sentence:

Carey C. Hice Sr. -Travelers Rest, S.C. Offense: Income tax evasion; 26 U.S.C. Section 7201 and 18 U.S.C. Section 2. Sentence:March 5, 1996; District of South Carolina; three years' probation condition on 180 days' home confinement and a $13,000 fine.

IRS Announces 2009 Mileage Rates

The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.
The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.
The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Monday, November 17, 2008

Myth: Taxpayer is not a “citizen” of the United States

Some individuals argue that they have rejected citizenship in the United States in favor of state citizenship; therefore, they are relieved of their federal income tax obligations. A variation of this argument is that a person is a free born citizen of a particular state and thus was never a citizen of the United States. The underlying theme of these arguments is the same: the person is not a United States citizen and is not subject to federal tax laws because only United States citizens are subject to these laws.

The Law: The Fourteenth Amendment to the United States Constitution defines the basis for United States citizenship, stating that all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they
reside.” The Fourteenth Amendment therefore establishes simultaneous state and federal citizenship. Claims that individuals are not citizens of the United States but are solely citizens of a sovereign state and not subject to federal taxation have been uniformly rejected by the courts.

The IRS issued Revenue Ruling, warning taxpayers of the consequences of making this frivolous argument.

Myth: Wages, tips, and other compensation received for personal services is not income

This argument asserts that wages, tips, and other compensation received for personal services are not income, because there is allegedly no taxable gain when a person “exchanges” labor for money. Under this theory, wages are not taxable income because people have basis in their
labor equal to the fair market value of the wages they receive; thus, there is no gain to be taxed. A variation of this argument misconstrues section 1341, which deals with computations of tax where a taxpayer restores a substantial amount held under claim of right, to somehow allow a
deduction claim for personal services rendered.

Another similar argument asserts that wages are not subject to taxation where a person has obtained funds in exchange for their time. Under this theory, wages are not taxable because the Code does not specifically tax these so-called “time reimbursement transactions.” Some take a different approach and argue that the Sixteenth Amendment to the United States Constitution did not authorize a tax on wages and salaries, but only on gain or profit.

For federal income tax purposes, “gross income” means all income from whatever source derived and includes compensation for services. Any income, from whatever source, is presumed to be income under section 61, unless the taxpayer can establish that it is specifically exempted or excluded.

In 1994,the court stated, “an abiding principle of federal tax law is that, absent an enumerated exception, gross income means all income from whatever source derived.” The IRS issued Revenue Ruling 2007-19, advising taxpayers that wages and other compensation received in exchange for personal services are taxable income and warning of the consequences of making frivolous arguments
to the contrary.

Myth: Filing "Zero" Reduces Your Tax Liability

Some taxpayers are attempting to reduce their federal income tax liability by filing a tax return that reports no income and no tax liability (a “zero return”) even though they have taxable income. Many of these taxpayers also request a refund of any taxes withheld by an employer. These individuals typically attach to the zero return a Form W-2, or other information return that reports income and income tax withholding, and rely on one or more of the frivolous arguments discussed throughout this outline in support of their position.

The Law: There is no authority that permits a taxpayer that has taxable income to avoid income tax by filing a zero return. Section 61 provides that gross income includes all income from whatever source derived, including compensation for services. Courts have repeatedly penalized
taxpayers for making the frivolous argument that the filing of a zero return can allow a taxpayer to avoid income tax liability, or permit a refund of tax withheld by an employer. Courts have also imposed the frivolous return and failure to file penalties because such forms do not evidence an honest and reasonable attempt to satisfy the tax laws or contain sufficient data to calculate the tax liability.

Returns: The Law

The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section. (Section 11 imposes a tax on the taxable income of corporations.)

Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties.

In discussing section 6151, the Eighth Circuit Court of Appeals stated that “when a tax return is required to be filed, the person so required ‘shall’ pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the . . . tax, a duty which he chose to ignore.” United States v. Drefke, 707 F.2d 978, 981 The requirement to pay taxes is not voluntary and is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates, and trusts as determined by the tables set forth in that section. (Section 11 imposes a tax on the taxable income of corporations.)

Furthermore, the obligation to pay tax is described in section 6151, which requires taxpayers to submit payment with their tax returns. Failure to pay taxes could subject the noncomplying individual to criminal penalties, including fines and imprisonment, as well as civil penalties. In discussing section 6151, the Eighth Circuit Court of Appeals stated that “when a tax return is required to be filed, the person so required ‘shall’ pay such taxes to the internal revenue officer with whom the return is filed at the fixed time and place. The sections of the Internal Revenue Code imposed a duty on Drefke to file tax returns and pay the . . . tax, a duty which he chose to ignore.” United States v. Drefke, 707 F.2d 978, 981

There have been no civil cases where the Service’s lack of response to a taxpayer’s inquiry has relieved the taxpayer of the duty to pay tax due under the law. Courts have in rare instances waived civil penalties because they have found that a taxpayer relied on a Service misstatement
or wrongful misleading silence with respect to a factual matter. Such an estoppel argument does not, however, apply to a legal matter such as whether there is legal authority to collect taxes.

Payment Of Tax Is Voluntary

In a similar vein, some argue that they are not required to pay federal taxes because the payment of federal taxes is voluntary. Proponents of this position argue that our system of taxation is based upon voluntary assessment and payment. They frequently claim that there is no provision in the Internal Revenue Code or any other federal statute that requires them to pay or makes them liable for income taxes, and they demand that the IRS show them the law that imposes tax on their income.

The stance that is taken is that until the IRS can prove to these taxpayers’ satisfaction, which is effectively impossible because they never will be satisfied, the existence and applicability of the income tax laws, they will not report or pay income taxes. These taxpayers reflexively dismiss any attempt by the IRS to identify the laws, thereby continuing the cycle. The IRS has issued Revenue Ruling 2007-20, 2007-14 I.R.B. 863, discussing this frivolous position at length and warning taxpayers of the consequences of asserting it.

Thursday, November 13, 2008

Direct Depositing Your IRS Refunds


Direct Deposit and IRS.gov Set Records-

More taxpayers chose to receive their refunds through direct deposit during 2008. The agency made 66 million direct deposit payments in 2008, up 8 percent from 61 million payments at the same time in 2007.

Overall, the IRS issued 107 million tax refund payments in 2008, up almost 2 percent from 105 million refund payments for the same time in 2007. As of Oct. 31, the average refund for 2008 was $2,371, up 4 percent from $2,280 at the same time in 2007.

What Do Revenue Officers Do ?

If you have tax debt, and you have recently been assigned a Revenue, you may be asking yourself what they do? Well Revenue Officer's assigned to a taxpayer's accoutn due to negligence on the taxpayers part in regards to unpaid liabilities.

A revenue officer is the highest level of the collections chain. When a revenue officer is assigned to you, they have the ability to levy you into the ground. If you happen to own your own business where you have employees, the IRS can seize your property and close your business if you to not comply to what they ask of you.

Most Revenue Officers are more concerned with staying current on taxes going forward as opposed to back taxes. If you own your business, it would behove you to file your current returns to get in compliance. And, because your business is assigned to a Revenue Officer, the IRS will collect to the extent that there is funds available by the business and the responsible individuals.

Revenue Officers do not consider OICs (Offer In Compromise) - they have to send it to a Centralized OIC Unit in Holtsville, NY or Memphis, TN who can send it out to a Field Office (Not your RO though) to make an independent determination (they do this if you have a business or have trust fund tax liabilities).

Monday, November 10, 2008

IRS Partners Host Free Tax Help for Low-Income, Elderly Taxpayers

Nearly 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 $40,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

Today, more than 150 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. 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.

Frivolous Claims To Avoid

The Internal Revenue Service today issued a notice that lists four additional erroneous legal positions that taxpayers should refrain from using as an excuse to avoid paying their taxes.
An individual or group may not avoid paying their fair share of taxes by making “frivolous” legal arguments such as those listed in this notice. The IRS publicizes these frivolous claims to help taxpayers understand the law and avoid penalties.
Notice 2008-14 lists positions identified as frivolous for purposes of the penalty under section 6702 of the federal tax code for filing a frivolous tax return or submitting to the IRS a frivolous request for a collection due process hearing or application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order.
Taxpayers who file a tax return or make a submission based on a position listed in this notice are subject to a $5,000 penalty. This notice adds to the positions listed in Notice 2007-30, 2007-14 I.R.B. 883. The positions that have been added are found in paragraphs 9(g), 11, 14, and 25.
The four new frivolous claims pertain to the following:

*Misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending.
*Erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States or the IRS.

*A nonexistent “Mariner’s Tax Deduction” (or the like) related to invalid deductions for meals.
*Certain instances of misuse or excessive use of the section 6421 fuels credit.

In 2006, Congress increased the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

IRS Announces 2009 VITA Grants

The Internal Revenue Service has awarded almost $8 million in matching grants to support its Volunteer Income Tax Assistance program.Under the VITA Grant Program, the IRS awarded matching grants to 111 organizations that plan to offer free tax preparation sites in 2009. The sites will be located in all 50 states and the District of Columbia.“This is the first time we’ve been able to provide matching grants to support the VITA program. These grants can be used to expand free services to some of the millions of taxpayers served each year by these VITA sites and their volunteer tax preparers,” said Richard E. Byrd, Jr., IRS Commissioner, Wage and Investment Operating Division.The funds will be used to:

Enable VITA programs to extend services to underserved populations and hardest to reach areas, both urban and non-urban
Increase the capacity to file returns electronically
Heighten quality control
Enhance training of volunteers
Significantly improve the accuracy of returns prepared by the VITA sites

There was an overwhelming response to the first-ever VITA grant with 379 organizations submitting applications requesting more than $30 million in matching funds.VITA partners are organizations that provide free federal tax return preparation and electronic filing for low to moderate income individuals. For tax year 2008, individuals and families with an adjusted gross income of $42,000 are eligible for assistance.The VITA program has enjoyed tremendous support in the years since its creation in 1969. Along with Tax Counseling for the Elderly, another volunteer return preparation program sponsored by IRS for older individuals, more than 3 million tax returns and economic stimulus payment requests were prepared and filed in 2008 at nearly 12,000 locations nationwide.

Thursday, November 6, 2008

Monthly Disposable Income

Did you know that Monthly Disposable Income is the determining value of how much the IRS will negotiate a payment for? The key is knowing what goes in to determining how much you can afford and what the IRS deems as a necessary living expense.

As a general rule, the IRS has standards for food, clothing,car payment,medical expenses. Say for instance, if one person lives in the household, the IRS standard for food,clothing is $507 with medical expense as $57, car payment would be around $489. The IRS also allows for a car maintenance standard but has to take in consideration the state/county one lives in.

When attempting a resolution with the IRS, a taxpayer will have to provide full financial disclosure (of liability exceeds $25,000) including but not limited to utilities, mortgage payments, car payments, other secured debt, medical payments, and car insurance. Other permissible expenses would need to be court ordered or secured by another financial institution.

Determining ones Monthly Disposable Income (MDI) means taking your income minus your expenses. If you have tax liability, it would behoove you to hire a professional to assess what your best possible outcome by determining your MDI. There are so many factors to take into consideration (while determining this MDI) that the average taxpayer is not inclined to know.

There are tax professionals in a growing industry that can help you today !

Wednesday, November 5, 2008

Obama's Plans To Tax The MLB Teams

Going once...going twice...signed by the major league baseball team willing to pay a signing bonus before December 31st.

That is what we might hear from baseball players' agents after they have considered the real possibility that Barack Obama's intention to hike the tax rate on the wealthiest Americans will impact their clients.

You see, the current minimum yearly salary for a big league player is $400,000. That puts the lowliest of bench warmers and pinch hitters into the top 1% of all wage earners in this great country. Obama campaigned on the promise of restoring the top income tax rate to 39.6%, the applicable level during the Clinton administration.

That minimum salary figure equals the increase in yearly taxes that will be paid by a major leaguer who makes $10,000,000 a year if the Obama tax plan becomes law. Incredible. So what's a super-agent to do in this first week of activity in the free agent market?

He has to devise a strategy to get major league clubs to pay some of a player's 2009 compensation prior to the end of 2008. The only way that can happen is in the form of a signing bonus and a quick negotiation before the end of the year.

This year I think he'll try to convince the clubs that it may be in their best interest as well as a tax advantage for them to characterize salary as a bonus.

Penalty Abatement

Recently I had a client that assumed we would be able to lower their liability for them. This is a very broad statement and one that is possible, but needs some major substantiation. According to the IRS, the only reasons they would abate penalties on liability would be for the following reasons:

* Incarceration
* Lost/Misplaced Documents
* Severe Medical Condition
* Erroneous Advice gievn by an IRS agent


All this would prevent a taxpayer from being able to physically file their returns.

The IRS will never abate interest, but would possibly abate penalties provided they meet the above qualifications.

For example, I had a client that said he was the primary care giver while going through a difficult
divorce. He asked if he qualify for penalty abatement, to which I said unfortunately not, because he physically able to file his returns to consequently prevent further penalties. If he were the one with a medical condition, then the outcome would be different and would be more advantageous to file for penalty abatement.

Monday, November 3, 2008

Part Two Of SE IRA Deduction

Qualifications to claim deductions
If you are self-employed, you may qualify for a tax deduction for contributions you make to a qualified retirement plan. You must have self-employment income to qualify. Self-employment income consists of net profits from Schedule C or Schedule F.

The deduction is the total plan contributions you can subtract from gross income on your federal income tax return. Limits apply to the amount deductible. You can avoid examinations and additional assessments by making sure you qualify for the deduction.

The self-employed retirement plan deduction may not be allowable if:
- Form 1040, Schedule SE, Section A (if applicable), Line 4, is less than the amount on Form 1040, Line 28.
- Form 1040, Schedule SE, Section B (if applicable), Line 6, is less than the amount on Form 1040, Line 28.
- Form W-2 indicates an individual is a Statutory Employee and the amount in Box 1 is less than Form 1040, Line 28.

Deduction limits for the self employed
If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment — which takes into account both of the following deductions:
- Deduction for one-half of your self-employment tax.
- Deduction for contributions to your own SEP-IRA.

Use the rate table or worksheets in chapter 5 of IRS Publication 560, “Retirement Plans for Small Business” for figuring your allowable contribution rate and tax deduction for your SEP-IRA plan contributions.

Deducting contributions
When to deduct contributions for a year depends on the tax year on which the SEP is maintained. If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year.

For example, you are a fiscal year taxpayer whose tax year ends June 30. You maintain a SEP on a calendar year basis. You deduct SEP contributions made for calendar year 2008 on your tax return for your tax year ending June 30, 2009.

Self Employees Can Deduct Retirement Plan Expense

Retirement plans are not just for big businesses. They are also available for sole proprietorships. If you are self-employed small business owner, you can set up a qualified retirement plan for yourself and your employees.

If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustee fees if contributions to the plan do not cover them.

The Internal Revenue Code provides significant tax incentives for employers that establish and maintain retirement plans that comply with the requirements of the Code. Such plans include Simplified Employee Pension (SEP) plans and Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA) plans.

Generally under these plans, contributions that are set aside for retirement may be currently deductible by the employer, but are not taxable to the employee until distributed from the plan.
You must set up and fund a qualified retirement plan such as a SEP or SIMPLE-IRA. No matter what type of plan for the self-employed you are considering, you must actually make contributions to a qualified and properly maintained retirement plan account. This fact sheet provides a quick look at preventing incorrect deductions for retirement plan.

Thursday, October 30, 2008

Qualifying Dependents

I was recently asked by a client whether or not they could claim their father (who is over 65) that lives with them as a dependant. The answer is yes! This client takes care of her father, who is completely dependant upon her for his care both personally and financially. This is as long as they live in the same household.

For Example:
Ms. Hernandez is 72 years old and lives in an apartment. Last year she received $3,000 in nontaxable Social Security benefits and $400 in taxable interest income, all of which was used for her support. Ms. Hernandez's daughter, Theresa, paid $4,800 during the year toward her mother's support. Total support includes taxable and nontaxable income. Ms. Hernandez's total support is $8,200 ($3,000 + $400 + $4,800). Theresa paid more than half of her mother's support ($4,800/$8,200 = 59%).

Theresa can claim a dependency exemption for Ms. Hernandez.

Secondly, client also asked whether or not they could claim their handicapped child (who is 21) as a dependant. This answer to this is yes as well. The IRS allows a taxpayer to claim a child, no matter their age as a dependent, as long as they live in the same household.

A taxpayer can also claim a child as a dependent that is under 24 years old and the taxpayer cares for over 50% their expenses. Say for instance, a child in school and does not work is allowed to be claimed a dependent because they depend on their caregiver for over half of their living expenses. However, if the child is living at home, has a job, and prov, then they pays for more than 50% of their necessary living expenses, then they are not be considered a dependent because of the amount of income they generate. They would need to file an income tax return themselves.

Tuesday, October 28, 2008

Mortgage Revenue Bonds

With much anxiety our nation has been experiencing over the economy, there will be relief for those who have suffered in the housing market with forclosures. Under The Housing And Economic Recovery Act of 2008, the legislation authorizes up to $11 billion in additional tax-exempt bonds for refinancing sub-prime loans, lending to first time homebuyers, and investment in affordable housing.

Additionally, it offers nearly $4 billion in federal grants to state and local governments for the purpose of buying foreclosed homes, rehabilitating them, and then selling them as affordable housing.

The act raises to $625,000 the limit for loans backed by FHA, Fannie Mae, and Freddie Mac. This increase is primarily geared toward markets with very high values such as California, allowing for more refinancing opportunities and lower interest rates on the loans. Additional changes include a one-year moratorium on risk-based pricing by the FHA and reforms to the HECM and manufactored housing programs. The act also raises the minimum down payment required on FHA-backed loans to 3.5 percent from 3 percent.

HOPE:A Provision Of The Housing & Recovery Act 2008

There are other notable provisions to The Housing And Economic Recovery Act of 2008 that many taxpayers will benefit from in 2009.

The Home Ownership Preservation Entity (HOPE) section establishes a fund to assist distreessed borrowers in obtaining 30-year refinance loans.

To qualify, the lender must voluntarily agree to write down the loan to 90% of current appraised home value, and borrowers must give 50% of future home appreciation to the FHA.

If you have questions about this Recovery Act and what it entails (come tax time), contact a tax professional versus attempting to prepare your returns on your own. When preparing your own return, one might forget to factor in this opportunity.

Monday, October 27, 2008

Local Radio Station Bails Out Joe The Plumber

Shortly after John McCain made Ohio plumber Joe Wurzelbacher a household name following last Wednesday’s presidential debate, reporters and bloggers soon discovered a couple problems with Joe’s everyman story.

First, they discovered his name wasn’t exactly Joe—full name Samuel Joseph Wurzelbacher. Then, it turned out that while he practices the trade, Joe wasn’t a licensed plumber. And finally, while Joe was bemoaning Barack Obama’s proposed tax increases, the Ohioan was also delinquent on paying his own—with a $1,200 tax lien against him by the state of Ohio.

In response to the media coverage, two local Portland, Oregon radio hosts launched this article to help Wurzelbacher pay his back taxes.

Portland’s 1190 KEX’s afternoon News Radio hosts Mark Mason and Dave Anderson succeeded in that goal today, not only raising the $1,200 Joe the Plumber needs to pay his taxes, but also the $500 he’ll need to get his plumber’s license.

In an e-mail to Washington Wire, Mason writes that the hosts spoke to Wurzelbacher and his brother on air tonight to break the news. “We just spoke with Joe (and his brother) LIVE right now…felt that the media was unfair in that they never seemed to ask HIM about his background,” Mason wrote this evening, “He was very grateful for the $$.”

Still Missing Your Refund Or Stimulus Check???

The Internal Revenue Service is looking for taxpayers who are missing more than 279,000 economic stimulus checks totaling about $163 million and more than 104,000 regular refund checks totaling about $103 million that were returned by the U.S. Postal Service due to mailing address errors.

“People across the country are missing tax refunds and stimulus checks. We want to get this money into the hands of taxpayers where it belongs,” said IRS Commissioner Doug Shulman. “We are committed to making the process as easy as possible for taxpayers to update their addresses with the IRS and get their checks.”

All a taxpayer has to do is update his or her address once. The IRS will then send out all checks due.

Stimulus Checks
It is crucial that taxpayers who may be due a stimulus check update their addresses with the IRS by Nov. 28, 2008. By law, economic stimulus checks must be sent out by Dec. 31 of this year. The undeliverable economic stimulus checks average $583.

The “Where’s My Stimulus Payment?" tool on this Web site is the quickest and easiest way for a taxpayer to check the status of a stimulus check and receive instructions on how to update his or her address. Taxpayers without internet access should call 1-866-234-2942.

Regular Refunds
The regular refund checks that were returned to the IRS average $988. These checks are resent as soon as taxpayers update their address.

Taxpayers can update their addresses with the “Where’s My Refund?” tool on this Web site. It enables taxpayers to check the status of their refunds. A taxpayer must submit his or her social security number, filing status and amount of refund shown on their 2007 return. The tool will provide the status of their refund and in some cases provide instructions on how to resolve delivery problems.

Tuesday, October 21, 2008

Changes to $250 k/$500 k Exclusions on Home Sales Gains

Under the newly revised code, taxpayers can no longer take a full exclusion (up to $500,000 for joint filers) on gains from the sale of their primary residence if there was non-qualified periods based on the time it was designated as each. Also, portion of the gain assigned to the non-qualified period will not be excluded from homeowner income. So, if a real property was a rental for four years and then converted to a primary for six years prior to sale (a total of 10 years ownership), then 60% would qualify for exemption up to $500k joint threshold ($250K single).

State and Local Property Tax Deduction:
For tax year 2008, non-itemizing taxpayers can claim an additional real property tax standard deduction of up to $1000 for joint filers. This in addition to the standard deductions.

New Tax Credit For Some Home Buyers

In 2009 there is a temporary, one-time tax credit up to ten percent of property value , not to exceed $7500 for joint filers and subject to income phaseouts. Under the act's housing assistance section, first-time buyers of a principle residence who purchase the property between April 8, 2008 and July 1, 2009, can take this refundable federal tax credit, which phases out for joint filers and subject to income phaseouts. Under the act's housing assistance section, first-time buyers of a principle residence who purchase the property between April,8 2008 and July 1, 2009, can take this refundable federal tax credit, which phases out for joint incomes between $150,000 AND $170,000.

Although the tax credit limits are low for some areas of the country, many view this provision as a down payment assistance device, since it provides up to ten percent of a home's value . This credit is self-supporting, since it requires taxpayers who receive it to repay it over 15 years through their annual returns.

2008 Housing Bill Brings Many Tax Changes

As everyone is aware, our country has been experiencing great financial turmoil for quite some time. With the increased gas prices and the economical deficit of this country, we have entered what I consider to be (but has been consecrated for fear of shear mental panic) a recession. With the turmoil in the mortgage markets, new changes for tax professionals is on the rise for 2009.

The September federal takeover of Fannie Mai and Freddie Mac has, unfortunately , overshadowed much of the substantial legislation that was enacted a little earlier this year. However, theses changes are monumental and will affect many of our tax clients in the upcoming year.

The Housing and Economic Recovery Act of 2008 was signed into law by our President Bush on July 30, with much media attention surrouding the forclosure provisions. But the act included changes to the mortgage programs, a new tax credit for the first time homeowner's, the ability for our non-itemizers to claim a state and local property tax deduction. Several revenue raising provisions were also included reduced exclusions for gains realized on home sales, the end of seller-funded down payment assistance programs, and increase in FHA loan down payments.

Monday, October 20, 2008

Pension Limitations: Part Two

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $32,000 to $33,000; the limitation under Section 25B(b)(1)(B) is increased from $34,500 to $36,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $53,000 to $55,500.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $24,000 to $24,750; the limitation under Section 25B(b)(1)(B) is increased from $25,875 to $27,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $39,750 to $41,625.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $16,000 to $16,500; the limitation under Section 25B(b)(1)(B) is increased from $17,250 to $18,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $26,500 to $27,750.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $85,000 to $89,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $53,000 to $55,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $159,000 to $166,000.

The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $159,000 to $166,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $101,000 to $105,000.

Pension Plan Limitations for 2009

The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2009.
Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost‑of‑living increases.

Many of the pension plan limitations will change for 2009 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, for others, the limitation will remain unchanged. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,500 to $16,500. This limitation affects elective deferrals to Section 401(k) plans and to the federal government’s Thrift Savings Plan, among other plans.

Effective Jan. 1, 2009, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $185,000 to $195,000. For participants who separated from service before Jan. 1, 2009, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2008, by 1.0530.

Wednesday, October 15, 2008

Personal Versus Business Expense

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.
For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible.

Business Use of Your Home
If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.

Business Use of Your Car
If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.

If you need your taxes prepared and you have business expenses, don't prepare them yourself, hire a tax professional.

Tuesday, October 14, 2008

Personal Side Trip While On Business

I recently had a client ask me whether or not they could deduct a personal side trip while away on business, as an expense? The answer is no ! While on business, if you plan on taking some extra personal time, you will be unable to deduct this as a business expense.

Say for instance, you are in Vegas on business, and you stop off in Arizona to visit family, you spend $2050 on travel,meals,and lodging and other travel expenses. If you had not stopped off in Arizona, you would have only spent $1150 pertaining to business only. Therefore you will only be able to deduct the $115o you would have spent on business alone and the round trip tickets it costs to travel to Vegas. In addition to this deduction, you will also be able to deduct 50% of your meals pertaining to business.

If your trip consist primarily of personal reasons, such as vacation, you will be unable to deduct this as a business expenses.

Business Expense Deduction:Meals & Incidental

If you are self-employed and often have expenses, you need to also include your meals and other incidental expenses as well. According to the IRS, you can deduct the cost of meals in either of the following situations:

*It is necessary for you to stop for substantial sleep or rest to properly perform you daiy duties while traveling away from home on business.

*The meal is business-related entertainment.

However, you cannot deduct expenses for meals that are lavish or extravagant. An expense is not considered lavish or extravagant if it is based on actual circumstances. Expenses will not be dissalowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.

Gernerally you are able to deduct 50% of the cost of your meals according to the IRS regulations. If you consume the meals during incident to any period subject to the Department of Transportation hours of service limits,you can deduct a higher percentage. The percentage is 75% for 2006 and 2007 and 80% for 2008 and thereafter. These certain air transporation workers ae pilots,crew,dispachers,mechanics, and control tower operaters, interstate truck operaters and bus drivers.

Incidental Expenses:

*These include tips to porters, baggage carriers,bellhops,hotel maids,stewards, or stewardesses and others on ships, and hotel servants in foreign countries.
*Transportation between places of lodging or business and places where meals are taken.
*Mailing costs associated with travel vouchers and payment of employer-sponsored charge card billings.

If you have questions, or need a tax profesional, don't hesitate to reach out for assistance.

Sunday, October 12, 2008

Business Expense Deduction

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Business Expenses

Employees' Pay - You can generally deduct the pay you give your employees for the services they perform for your business.

Retirement Plans - Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees' retirement.

Rent Expense - Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.

Interest - Business interest expense is an amount charged for the use of money you borrowed for business activities.

Taxes - You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.

Insurance - Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.
This list is not all inclusive of the types of business expenses that you can deduct

Deductible Traveling Expenses

Those that travel extensively away from home need to determine how and what is deemed as a tax deduction on their taxes. You can deduct ordinary and necessary you hate when you are travel away from home on business. The type of expense you can deduct depends on the facts and you can deduct on the facts and your circumstances.
When you travel away from home on business, you should keep good business records of all expenses you have and any advances you receive from your employer. You can use a log,diary,notebook, or any other written record to keep track of your expenses.
If you have one expense that includes the costs of meals, entertainment, and other services (such as logging and transportation), you must allocate that expense between the costs and the meals and entertainment and the cost of other services. You must have a resonable basis for making this allocation. For example, you must alliocate your expenses if a hotel includes one or more meals in its room charge. However, if a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses.

Can deduct the travel expenses of someone who goes with you if that person:
1.Is your employee
2.Has a bona fide business purpose for the travel, and
3.Would otherwise be allowed to deduct the travel expenses.