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.