What’s New 2012-2013

 

 

Compiled by Anthony Heras

Hera’s Income Tax School

http://www.herasincometaxschool.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What's New 2012-2013

Important tax changes that took effect in 2012 and until May 21, 2013. Most of these changes are discussed in more detail throughout this guide.

Future developments. For the latest information about the tax law topics covered in this publication, including information about any tax legislation, go to www.irs.gov/pub17.

Tax benefits extended. Several temporary tax benefits have been extended through 2013, including the following.

Deduction for educator ex-penses. See chapter 19 Publication 17.

Tuition and fees deduction. See chapter 19 Publication 17.

Credit for nonbusiness energy property. See chapter 36 Publication 17.

Election to deduct state and local general sales taxes in-stead of state and local in-come taxes. See chapter 22.

Deduction for mortgage insur-ance premiums. See chap-ter 23 Publication 17.

Exclusion from income of qualified charitable distribu-tions. See chapter 17 Publication 17 .

Standard mileage rates. The 2012 rate for business use of your car remains 55 cents a mile. See chapter 26 Publication 17.

The 2012 rate for use of your car to get medical care is de-creased to 23 cents a mile. See chapter 21 Publication 17 .

The 2012 rate for use of your car to move is decreased to 23 cents a mile. See Publication 521, Moving Expenses.

Exemption amount. The amount you can deduct for each exemption has increased. It was $3,700 for 2011. It is $3,800 for 2012. See chapter 3 Publication 17.

Roth IRAs. If you converted or rolled over an amount to a Roth IRA in 2010 and did not elect to re-port the taxable amount on your 2010 return, you generally must re-port half of it on your 2011 return and the rest on your 2012 return. See Publication 575 for details.

Designated Roth accounts. If you rolled over an amount from a 401(k) or 403(b) plan to a designa-ted Roth account in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return. See Publication 575 for details.

Schedule 8812. Use Schedule 8812 (Form 1040A or 1040) to fig-ure your additional child tax credit for 2012. Schedule 8812 is new for 2012. Form 8812 is no longer in use. See chapter 33.

Identity Protection Personal Identification Number (Identity Protection PIN or IP PIN). If we sent you an Identity Protection PIN, see chapter 1 to find out how to use it.

Mailing your return. If you are fil-ing a paper return, you may be mailing it to a different address this year because the IRS has changed the filing location for several areas. See Where To File near the end of this publication for a list of IRS ad-dresses.

Who must file. Generally, the amount of in-come you can receive before you must file a re-turn has been increased. See Table 1-1, Ta-ble 1-2, and Table 1-3 for the specific amounts.

Mailing your return. If you file a paper return, you may be mailing it to a different address this year because the IRS has changed the filing lo-cation for several areas. See Where Do I File, later in this chapter.

Table 1-1. 2012 Filing Requirements for Most Taxpayers IF your filing status is...

AND at the end of 2012 you were...*

THEN file a return if your gross income was at least...**

single

under 65

$ 9,750

65 or older

$11,200

married filing jointly***

under 65 (both spouses)

$19,500

65 or older (one spouse)

$20,650

65 or older (both spouses)

$21,800

married filing separately

any age

$ 3,800

head of household

under 65

$12,500

65 or older

$13,950

qualifying widow(er) with dependent child

under 65

$15,700

65 or older

$16,850

 

*

If you were born on January 1, 1948, you are considered to be age 65 at the end of 2012.

**

Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Do not include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2012 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the instructions for Form 1040 or 1040A or Publication 915 to figure the taxable part of social security benefits you must include in gross income. Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

***

If you did not live with your spouse at the end of 2012 (or on the date your spouse died) and your gross income was at least $3,800, you must file a return regardless of your age.

2012 Filing Requirements for Dependents

See chapter 3 to find out if someone can claim you as a dependent. If your parents (or someone else) can claim you as a dependent, and any of the situations below apply to you, you must file a return. (See Table 1-3 for other situations when you must file.)

In this table, earned income includes salaries, wages, tips, and professional fees. It also includes taxable scholarship and fellowship grants. (See Scholarships and fellowships in chapter 12.) Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust. Gross income is the total of your earned and unearned income.

Single dependents—Were you either age 65 or older or blind?

No.

You must file a return if any of the following apply.

Your unearned income was more than $950.

Your earned income was more than $5,950.

Your gross income was more than the larger of:

$950, or

Your earned income (up to $5,650) plus $300.

Yes.

You must file a return if any of the following apply.

Your unearned income was more than $2,400 ($3,850 if 65 or older and blind).

Your earned income was more than $7,400 ($8,850 if 65 or older and blind).

Your gross income was more than the larger of:

$2,400 ($3,850 if 65 or older and blind), or

Your earned income (up to $5,650) plus $1,750 ($3,200 if 65 or older and blind).

Married dependents—Were you either age 65 or older or blind?

No.

You must file a return if any of the following apply.

Your unearned income was more than $950.

Your earned income was more than $5,950.

Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

Your gross income was more than the larger of:

$950, or

Your earned income (up to $5,650) plus $300.

Yes.

You must file a return if any of the following apply.

Your unearned income was more than $2,100 ($3,250 if 65 or older and blind).

Your earned income was more than $7,100 ($8,250 if 65 or older and blind).

Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.

Your gross income was more than the larger of:

$2,100 ($3,250 if 65 or older and blind), or

Your earned income (up to $5,650) plus $1,450 ($2,600 if 65 or older and blind).

 

Table 1-3. Other Situations When You Must File a 2012 Return

You must file a return if any of the four conditions below apply for 2012.

1.

You owe any special taxes, including any of the following.

a.

Alternative minimum tax.

b.

Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. But if you are filing a return only because you owe this tax, you can file Form 5329 by itself.

c.

Household employment taxes. But if you are filing a return only because you owe this tax, you can file Schedule H by itself.

d.

Social security and Medicare tax on tips you did not report to your employer or on wages you received from an employer who did not withhold these taxes.

e.

Recapture of first-time homebuyer credit.

f.

Write-in taxes, including uncollected social security and Medicare or RRTA tax on tips you reported to your employer or on group-term life insurance and additional taxes on health savings accounts.

g.

Recapture taxes.

2.

You (or your spouse, if filing jointly) received HSA, Archer MSA, or Medicare Advantage MSA distributions.

3.

You had net earnings from self-employment of at least $400.

4.

You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

 

When To File Your 2012 Return

For U.S. citizens and residents who file returns on a calendar year. For Most Taxpayers

For Certain Taxpayers Outside the U.S.

No extension requested

April 15, 2013

June 17, 2013

Automatic extension

October 15, 2013

October 15, 2013

       

 

Six Steps for Preparing Your Paper Return

1

Get your records together for income and expenses.

2

Get the forms, schedules, and publications you need.

3

Fill in your return.

4

Check your return to make sure it is correct.

5

Sign and date your return.

6

Attach all required forms and schedules.

 

Proof of Income and Expenses

FOR items concerning your...

KEEP as basic records...

Income

Form(s) W-2

Form(s) 1098

Form(s) 1099

Bank statements

Brokerage statements

Form(s) K-1

Expenses

Sales slips

Invoices

Receipts

Canceled checks or other proof of payment

Written communications from qualified charities

Home

Closing statements

Purchase and sales invoices

Proof of payment

Insurance records

Receipts for improvement costs

Investments

Brokerage statements

Mutual fund statements

Form(s) 1099

Form(s) 2439

Receipts for collectibles

 

IF payment is by...

THEN the statement must show the...

Cash

Amount

Payee's name

Transaction date

Check

Check number

Amount

Payee's name

Date the check amount was posted to the account by the financial institution

Debit or credit card

Amount charged

Payee's name

Transaction date

Electronic funds transfer

Amount transferred

Payee's name

Date the transfer was posted to the account by the financial institution

Payroll deduction

Amount

Payee code

Transaction date

 

Period of Limitations

Table 1-9.IF you...

THEN the period is...

1

Owe additional tax and (2), (3), and (4) do not apply to you

3 years

2

Do not report income that you should and it is more than 25% of the gross income shown on your return

6 years

3

File a fraudulent return

No limit

4

Do not file a return

No limit

5

File a claim for credit or refund after you filed your return

The later of 3 years or 2 years after tax was paid.

6

File a claim for a loss from worthless securities

7 years

       

 

 

Cost of Keeping Up a Home

Keep for Your Records

 

Amount You Paid

Total Cost

Property taxes

$

$

Mortgage interest expense

Rent

Utility charges

Repairs/maintenance

Property insurance

Food consumed on the premises

Other household expenses

Totals

$

$

Minus total amount you paid

( )

Amount others paid

$

If the total amount you paid is more than the amount others paid, you meet the requirement of paying more than half the cost of keeping up the home.

       

 

Who Is a Qualifying Person Qualifying You To File as Head of Household?1

Caution. See the text of this chapter for the other requirements you must meet to claim head of household filing status. IF the person is your . . .

AND . . .

THEN that person is . . .

qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests)2

he or she is single

a qualifying person, whether or not you can claim an exemption for the person.

he or she is married and you can claim an exemption for him or her

a qualifying person.

he or she is married and you cannot claim an exemption for him or her

not a qualifying person.3

qualifying relative4 who is your father or mother

you can claim an exemption for him or her5

a qualifying person.6

you cannot claim an exemption for him or her

not a qualifying person.

qualifying relative4 other than your father or mother (such as a grandparent, brother, or sister who meets certain tests)

he or she lived with you more than half the year, and he or she is related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and you can claim an exemption for him or her5

a qualifying person.

he or she did not live with you more than half the year

not a qualifying person.

he or she is not related to you in one of the ways listed under Relatives who do not have to live with you in chapter 3 and is your qualifying relative only because he or she lived with you all year as a member of your household

not a qualifying person.

you cannot claim an exemption for him or her

not a qualifying person.

       

 

1A person cannot qualify more than one taxpayer to use the head of household filing status for the year.

2The term "qualifying child" is defined in chapter 3. Note. If you are a noncustodial parent, the term "qualifying child" for head of household filing status does not include a child who is your qualifying child for exemption purposes only because of the rules described under Children of divorced or separated parents (or parents who live apart) under Qualifying Child in chapter 3. If you are the custodial parent and those rules apply, the child generally is your qualifying child for head of household filing status even though the child is not a qualifying child for whom you can claim an exemption.

3This person is a qualifying person if the only reason you cannot claim the exemption is that you can be claimed as a dependent on someone else's return.

4The term "qualifying relative" is defined in chapter 3.

5If you can claim an exemption for a person only because of a multiple support agreement, that person is not a qualifying person. See Multiple Support Agreement in chapter 3.

6See Special rule for parent for an additional requirement.

 

Exemption amount. The amount you can de-duct for each exemption has increased. It was $3,700 for 2011. It is $3,800 for 2012.

 

Overview of the Rules for Claiming an Exemption for a Dependent

Caution. This table is only an overview of the rules. For details, see the rest of this chapter.

You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer.

You cannot claim a married person who files a joint return as a dependent unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.

You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico.1

You cannot claim a person as a dependent unless that person is your qualifying child or qualifying relative.

Tests To Be a Qualifying Child

Tests To Be a Qualifying Relative

  1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
  2. The child must be (a) under age 19 at the end of the year and younger than you (or your spouse, if filing jointly), (b) under age 24 at the end of the year, a student, and younger than you (or your spouse, if filing jointly), or (c) any age if permanently and totally disabled.
  3. The child must have lived with you for more than half of the year.2
  4. The child must not have provided more than half of his or her own support for the year.
  5. The child is not filing a joint return for the year (unless that return is filed only to get a refund of income tax withheld or estimated tax paid).

If the child meets the rules to be a qualifying child of more than one person, only one person can actually treat the child as a qualifying child. See the Special Rule for Qualifying Child of More Than One Person to find out which person is the person entitled to claim the child as a qualifying child.

  1. The person cannot be your qualifying child or the qualifying child of any other taxpayer.
  2. The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you, or (b) must live with you all year as a member of your household2 (and your relationship must not violate local law).
  3. The person's gross income for the year must be less than $3,800.3
  4. You must provide more than half of the person's total support for the year.4

1There is an exception for certain adopted children.

2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents (or

parents who live apart), and kidnapped children.

3There is an exception if the person is disabled and has income from a sheltered workshop.

4There are exceptions for multiple support agreements, children of divorced or separated parents (or parents who live apart), and kidnapped

children.

 

Qualifying Child

Five tests must be met for a child to be your qualifying child. The five tests are:

  1.  

Relationship,

Age,

Residency,

Support, and

Joint return.

 

 

Worksheet for Determining Support Worksheet 3-1.

Keep for Your Records

 

Funds Belonging to the Person You Supported

1.

Enter the total funds belonging to the person you supported, including income received (taxable and nontaxable) and amounts borrowed during the year, plus the amount in savings and other accounts at the beginning of the year. Do not include funds provided by the state; include those amounts on line 23 instead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2.

Enter the amount on line 1 that was used for the person's support . . . . . . . . . . . . . . . . . . . . . . . .

2.

3.

Enter the amount on line 1 that was used for other purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4.

Enter the total amount in the person's savings and other accounts at the end of the year . . . . . .

4.

5.

Add lines 2 through 4. (This amount should equal line 1.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

Expenses for Entire Household (where the person you supported lived)

6.

Lodging (complete line 6a or 6b):

a. Enter the total rent paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6a.

b. Enter the fair rental value of the home. If the person you supported owned the home, also include this amount in line 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6b.

7.

Enter the total food expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

8.

Enter the total amount of utilities (heat, light, water, etc. not included in line 6a or 6b) . . . . . . . . .

8.

9.

Enter the total amount of repairs (not included in line 6a or 6b) . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

10.

Enter the total of other expenses. Do not include expenses of maintaining the home, such as mortgage interest, real estate taxes, and insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.

11.

Add lines 6a through 10. These are the total household expenses . . . . . . . . . . . . . . . . . . . . . . . .

11.

12.

Enter total number of persons who lived in the household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.

Expenses for the Person You Supported

13.

Divide line 11 by line 12. This is the person's share of the household expenses . . . . . . . . . . . . .

13.

14.

Enter the person's total clothing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.

15.

Enter the person's total education expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15.

16.

Enter the person's total medical and dental expenses not paid for or reimbursed by insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16.

17.

Enter the person's total travel and recreation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.

18.

Enter the total of the person's other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.

19.

Add lines 13 through 18. This is the total cost of the person's support for the year . . . . . . . . . . .

19.

Did the Person Provide More Than Half of His or Her Own Support?

20.

Multiply line 19 by 50% (.50) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20.

21.

Enter the amount from line 2, plus the amount from line 6b if the person you supported owned the home. This is the amount the person provided for his or her own support . . . . . . . . . . . . . . .

21.

22.

Is line 21 more than line 20? No. You meet the support test for this person to be your qualifying child. If this person also meets the other tests to be a qualifying child, stop here; do not complete lines 23–26. Otherwise, go to line 23 and fill out the rest of the worksheet to determine if this person is your qualifying relative. Yes. You do not meet the support test for this person to be either your qualifying child or your qualifying relative. Stop here.

Did You Provide More Than Half?

23.

Enter the amount others provided for the person's support. Include amounts provided by state, local, and other welfare societies or agencies. Do not include any amounts included on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23.

24.

Add lines 21 and 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24.

25.

Subtract line 24 from line 19. This is the amount you provided for the person's support . . . . . . .

25.

26.

Is line 25 more than line 20? Yes. You meet the support test for this person to be your qualifying relative. No. You do not meet the support test for this person to be your qualifying relative. You cannot claim an exemption for this person unless you can do so under a multiple support agreement, the support test for children of divorced or separated parents, or the special rule for kidnapped children. See Multiple Support Agreement or Support Test for Children of Divorced or Separated Parents (or Parents Who Live Apart), or Kidnapped child under Qualifying Relative.

       

 

Four tests must be met for a person to be your qualifying relative. The four tests are:

  1.  

Not a qualifying child test,

Member of household or relationship test,

Gross income test, and

Support test.

What's New for 2013

Tax law changes for 2013. When you figure how much income tax you want withheld from your pay and when you figure your estimated tax, consider tax law changes effective in 2013. For more information, see Publication 505.

 

You can use the IRS Withholding Cal-culator at www.irs.gov/Individuals, in-stead of Publication 505 or the work-sheets included with Form W-4, to determine whether you need to have your withholding in-creased or decreased.

 

If you first have income on which you must pay estimated tax:

Make apayment by:*

Make laterinstallmentsby:*

Before April 1

April 15

June 17Sept. 16Jan. 15 next year

April 1–May 31

June 17

Sept. 16Jan. 15 next year

June 1–Aug. 31

Sept. 16

Jan. 15 next year

After Aug. 31

Jan. 15next year

(None)

 

When To Pay Estimated Tax

For estimated tax purposes, the tax year is divi-ded into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your income tax return. The payment periods and due dates for estimated tax payments are shown next.

For the period:

Due date:*

Jan. 1 – March 31 .....

April 15

April 1 – May 31 ......

June 17

June 1 – August 31 ....

Sept. 16

Sept. 1– Dec. 31 ......

Jan. 15, next year

 

 

Table 7-1. Who Pays the Tax on U.S. Savings Bond Interest

IF ...

THEN the interest must be reported by ...

you buy a bond in your name and the name of another person as co-owners, using only your own funds

you.

you buy a bond in the name of another person, who is the sole owner of the bond

the person for whom you bought the bond.

you and another person buy a bond as co-owners, each contributing part of the purchase price

both you and the other co-owner, in proportion to the amount each paid for the bond.

you and your spouse, who live in a community property state, buy a bond that is community property

you and your spouse. If you file separate returns, both you and your spouse generally report one-half of the interest.

 

Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home Worksheet 9-1.

 

Use this worksheet only if you answer "yes" to all of the following questions.

Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home.)

Did you rent the dwelling unit at a fair rental price 15 days or more this year?

Is the total of your rental expenses and depreciation more than your rental income?

PART I. Rental Use Percentage

A.

Total days available for rent at fair rental price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.

B.

Total days available for rent (line A) but not rented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.

C.

Total days of rental use. Subtract line B from line A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C.

D.

Total days of personal use (including days rented at less than fair rental price) . . . . . . . . .

D.

E.

Total days of rental and personal use. Add lines C and D . . . . . . . . . . . . . . . . . . . . . . . . .

E.

F.

Percentage of expenses allowed for rental. Divide line C by line E . . . . . . . . . . . . . . . . . .

F.

PART II. Allowable Rental Expenses

1.

Enter rents received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2a.

Enter the rental portion of deductible home mortgage interest and qualified mortgage insurance premiums (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2a.

b.

Enter the rental portion of real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b.

c.

Enter the rental portion of deductible casualty and theft losses (see instructions) . . . . . . . . . .

c.

d.

Enter direct rental expenses (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d.

e.

Fully deductible rental expenses. Add lines 2a–2d. Enter here and on the appropriate lines on Schedule E (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2e.

3.

Subtract line 2e from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4a.

Enter the rental portion of expenses directly related to operating or maintaining the dwelling unit (such as repairs, insurance, and utilities) . . . . . . . . . . . . . . . . . . . . . . . . . . .

4a.

b.

Enter the rental portion of excess mortgage interest and qualified mortgage insurance premiums (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b.

c.

Carryover of operating expenses from 2011 worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

c.

d.

Add lines 4a–4c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d.

e.

Allowable expenses. Enter the smaller of line 3 or line 4d (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4e.

5.

Subtract line 4e from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6a.

Enter the rental portion of excess casualty and theft losses (see instructions) . . . . . . . . . . . .

6a.

b.

Enter the rental portion of depreciation of the dwelling unit . . . . . . . . . . . . . . . . . . . . . . . . . . .

b.

c.

Carryover of excess casualty losses and depreciation from 2011 worksheet . . . . . . . . . . . . .

c.

d.

Add lines 6a–6c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

d.

e.

Allowable excess casualty and theft losses and depreciation. Enter the smaller of line 5 or line 6d (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6e.

PART III. Carryover of Unallowed Expenses to Next Year

7a.

Operating expenses to be carried over to next year. Subtract line 4e from line 4d . . . . . . . . . . . . . . . . . . . . . .

7a.

b.

Excess casualty and theft losses and depreciation to be carried over to next year. Subtract line 6e from line 6d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

b.

 

Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home

 

Caution. Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of Part II.

Line 2a.

Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A (as if you were itemizing your deductions) if you had not rented the unit. Do not include interest on a loan that did not benefit the dwelling unit. For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Include the rental portion of this interest in the total you enter on line 2a of the worksheet.

Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A, if you had not rented the unit. See the Schedule A instructions. However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. See Line 4b to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet.

Note. Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Instead, figure the personal portion on a separate Schedule A. If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount.

Line 2c.

Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A if you had not rented the dwelling unit. To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. On Form 4684, line 17, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Enter the rental portion of the result from Form 4684, line 18, on line 2c of this worksheet.

Note. Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Instead, figure the personal portion on a separate Form 4684.

Line 2d.

Enter the total of your rental expenses that are directly related only to the rental activity. These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity.

Line 2e.

You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E.

Line 4b.

On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Do not include interest on a loan that did not benefit the dwelling unit (as explained in the line 2a instructions).

Line 4e.

You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e.*

Line 6a.

To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet.

A.

Enter the amount from Form 4684, line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.

Enter the rental portion of line A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C.

Enter the amount from line 2c of this worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.

Subtract line C from line B. Enter the result here and on line 6a of this worksheet . . . . . .

Line 6e.

You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e.*

 

*Allocating the limited deduction. If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I.

Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. At the time this publication went to print, guidance had not yet been issued. Once guidance is issued, we will post it on www.irs.gov/pub575.

Special Additional Taxes

To discourage the use of pension funds for pur-poses other than normal retirement, the law im-poses additional taxes on early distributions of those funds and on failures to withdraw the funds timely. Ordinarily, you will not be subject to these taxes if you roll over all early distribu-tions you receive, as explained earlier, and be-gin drawing out the funds at a normal retirement age, in reasonable amounts over your life ex-pectancy. These special additional taxes are the taxes on:

Early distributions, and

Excess accumulation (not receiving mini-mum distributions).

 

You must include on your return all items of in-come you receive in the form of money, prop-erty, and services unless the tax law states that you do not include them. Some items, however, are only partly excluded from income. This chapter discusses many kinds of income and explains whether they are taxable or nontaxa-ble.

Income that is taxable must be reported on your tax return and is subject to tax.

Income that is nontaxable may have to be shown on your tax return but is not taxable.

This chapter begins with discussions of the following income items.

Bartering.

Canceled debts.

Sales parties at which you are the host or hostess.

Life insurance proceeds.

Partnership income.

S Corporation income.

Recoveries (including state income tax re-funds).

Rents from personal property.

Repayments.

Royalties.

Unemployment benefits.

Welfare and other public assistance bene-fits.

 

Table 16-1. What Is Your Maximum Capital Gain Rate?

IF your net capital gain is from ...

THEN your maximum capitalgain rate is ...

a collectibles gain

28%

an eligible gain on qualified small business stock minus the section 1202 exclusion

28%

an unrecaptured section 1250 gain

25%

other gain1 and the regular tax rate that would apply is 25% or higher

15%

other gain1 and the regular tax rate that would apply is lower than 25%

0%

 

1 Other gain means any gain that is not collectibles gain, gain on qualified small business stock, orunrecaptured section 1250 gain.

What's New for 2012

Modified AGI limit for traditional IRA contributions increased. For 2012, if you were cov-ered by a retirement plan at work, your deduc-tion for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

More than $92,000 but less than $112,000 for a married couple filing a joint return or a qualifying widow(er),

More than $58,000 but less than $68,000 for a single individual or head of house-hold, or

Less than $10,000 for a married individual filing a separate return.

If you either lived with your spouse or file a joint return, and your spouse was covered by a retirement plan at work, but you were not, your deduction is phased out if your modified AGI is more than $173,000 but less than $183,000. If your modified AGI is $183,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You De-duct, later.

Modified AGI limit for Roth IRA contributions increased. For 2012, your Roth IRA contribution limit is reduced (phased out) in the following situations.

 

Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $173,000. You cannot make a Roth IRA contribution if your modified AGI is $183,000 or more.

Your filing status is single, head of house-hold, or married filing separately and you did not live with your spouse at any time in 2012 and your modified AGI is at least $110,000. You cannot make a Roth IRA contribution if your modified AGI is $125,000 or more.

Your filing status is married filing sepa-rately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

See Can You Contribute to a Roth IRA, later.

Qualified charitable distributions (QCD). The provision that excludes up to $100,000 of qualified charitable distributions (QCD) from in-come has been extended. You can elect to treat a QCD made in January 2013 as if it were made in 2012. Additionally, any portion of a distribu-tion from an IRA in December 2012 contributed as cash (or cash equivalent) to a charity before February 1, 2013 can be treated as a QCD for 2012 if it meets certain requirements. Both these transactions can count towards your mini-mum required distributions for 2012. See Pub. 590 for more information.

Airline payments. On February 14, 2012, the FAA Modernization and Reform Act was signed into law. This new law allows qualified airline employees to roll over up to 90% of all airline payments received to a traditional IRA. It would also allow qualified airline employees who pre-viously rolled over any airline payments to a Roth IRA to transfer a portion of the rollover contribution (including any allocable income or (loss)) as a rollover contribution to a traditional IRA, limited to 90% of all airline payments re-ceived. Generally, the rollover contribution to the traditional IRA must be made within 180 days from the date you received the airline pay-ment, or before August 14, 2012, whichever is later. For more information, see Publication 590.

What's New for 2013

Traditional IRA contribution and deduction limit. The contribution limit to your traditional IRA for 2013 will be increased to the smaller of the following amounts:

$5,500, or

Your taxable compensation for the year.

If you were age 50 or older before 2014, the most that can be contributed to your traditional IRA for 2013 will be the smaller of the following amounts:

$6,500, or

Your taxable compensation for the year.

For more information, see How Much Can Be Contributed? later.

Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of:

$5,500, or

Your taxable compensation for the year.

If you were age 50 or older before 2014 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2013 will generally be the lesser of:

$6,500, or

Your taxable compensation for the year.

However, if your modified adjusted gross in-come (AGI) is above a certain amount, your contribution limit may be reduced.

For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? later.

Modified AGI limit for traditional IRA contributions increased. For 2013, if you are cov-ered by a retirement plan at work, your deduc-tion for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

More than $95,000 but less than $115,000 for a married couple filing a joint return or a qualifying widow(er),

More than $59,000 but less than $69,000 for a single individual or head of house-hold, or

Less than $10,000 for a married individual filing a separate return.

If you either live with your spouse or file a joint return, and your spouse is covered by a re-tirement plan at work, but you are not, your de-duction is phased out if your modified AGI is more than $178,000 but less than $188,000. If your modified AGI is $188,000 or more, you cannot take a deduction for contributions to a traditional IRA.

Modified AGI limit for Roth IRA contributions increased. For 2013, your Roth IRA contribution limit is reduced (phased out) in the following situations.

Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $178,000. You cannot make a Roth IRA contribution if your modified AGI is $188,000 or more.

Your filing status is single, head of house-hold, or married filing separately and you did not live with your spouse at any time in 2013 and your modified AGI is at least $112,000. You cannot make a Roth IRA contribution if your modified AGI is $127,000 or more.

Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

Table 17-1. Effect of Modified AGI1 on Deduction if You Are Covered by Retirement Plan at Work

If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is...

AND your modified AGI is...

THEN you can take...

single or head of household

$58,000 or less

a full deduction.

more than $58,000 but less than $68,000

a partial deduction.

$68,000 or more

no deduction.

married filing jointly or qualifying widow(er)

$92,000 or less

a full deduction.

more than $92,000 but less than $112,000

a partial deduction.

$112,000 or more

no deduction.

married filing separately2

less than $10,000

a partial deduction.

$10,000 or more

no deduction.

 

1Modified AGI (adjusted gross income). See Modified adjusted gross income (AGI).

2If you did not live with your spouse at any time during the year, your filing status is considered Single for this purpose (therefore, your IRA deduction is determined under the "Single" column).

 

Table 17-2. Effect of Modified AGI1 on Deduction if You Are NOT Covered by Retirement Plan at Work

If you are not covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

IF your filing status is...

AND your modified AGI is...

THEN you can take...

single, head of household, or qualifying widow(er)

any amount

a full deduction.

married filing jointly or separately with a spouse who is not covered by a plan at work

any amount

a full deduction.

married filing jointly with a spouse who is covered by a plan at work

$173,000 or less

a full deduction.

more than $173,000 but less than $183,000

a partial deduction.

$183,000 or more

no deduction.

married filing separately with a spouse who is covered by a plan at work2

less than $10,000

a partial deduction.

$10,000 or more

no deduction.

       

What's New

The amount of your student loan interest de-duction for 2012 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $60,000 and $75,000 ($125,000 and $155,000 if filing a joint return). You cannot take a deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). This is an increase from the 2011 limits of $60,000 and $75,000 ($120,000 and $150,000 if filing a joint return). See chapter 4 of Publication 970 for more information.

Table 191. Student Loan Interest Deduction at a GlanceDo not rely on this table alone.Refer to the text for more details.

Do not rely on this table alone.Refer to the text for more details.

Feature

Description

Maximum benefit

You can reduce your income subject to tax by up to $2,500.

Loan qualifications

Your student loan:

must have been taken out solely to pay qualified education expenses, and

cannot be from a related person or made under a qualified employer plan.

Student qualifications

The student must be:

you, your spouse, or your dependent, and

enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.

Time limit on deduction

You can deduct interest paid during the remaining period of your student loan.

Phaseout

The amount of your deduction depends on your income level.

 

Table 192. Tuition and Fees Deduction at a Glance

Do not rely on this table alone. Refer to the text for more details.

Question

Answer

What is the maximum benefit?

You can reduce your income subject to tax by up to $4,000.

Where is the deduction taken?

As an adjustment to income on Form 1040, line 34, or Form 1040A, line 19.

For whom must the expenses be paid?

A student enrolled in an eligible educational institution who is either: you, your spouse, or your dependent for whom you claim an exemption.

What tuition and fees are deductible?

Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.

 

Table 19-3. Who Can Claim a Dependent's Expenses

Do not rely on this table alone. See Who Can Claim a Dependent's Expenses in chapter 6 of Publication 970.

IF your dependent is an eligible student and you...

AND...

THEN...

claim an exemption for your dependent

you paid all qualified education expenses for your dependent

only you can deduct the qualified education expenses that you paid. Your dependent cannot take a deduction.

claim an exemption for your dependent

your dependent paid all qualified education expenses

no one is allowed to take a deduction.

do not claim an exemption for your dependent, but are eligible to

you paid all qualified education expenses

no one is allowed to take a deduction.

do not claim an exemption for your dependent, but are eligible to

your dependent paid all qualified education expenses

no one is allowed to take a deduction.

are not eligible to claim an exemption for your dependent

you paid all qualified education expenses

only your dependent can deduct the amount you paid. The amount you paid is treated as a gift to your dependent.

are not eligible to claim an exemption for your dependent

your dependent paid all qualified education expenses

only your dependent can take a deduction.

What's New

Standard deduction increased. The stand-ard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2012 than it was for 2011. The amount depends on your filing status. You can use the 2012 Standard Deduction Tables in this chapter to figure your standard deduction.

 

2012 Standard Deduction Tables

If you are married filing a separate return and your spouse itemizes deductions, or if you are a dual-status alien, you cannot take the standard deduction even if you were born before January 2, 1948, or are blind.

 

Standard Deduction Chart for Most People*

Table 20-1.

 

If your filing status is...

Your standard deduction is:

Single or Married filing separately

$5,950

Married filing jointly or Qualifying widow(er) with dependent child

11,900

Head of household

8,700

*Do not use this chart if you were born before January 2, 1948, are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent. Use Table 20-2 or 20-3 instead.

 

Standard Deduction Chart for People Born Before January 2, 1948, or Who are Blind

Table 20-2.

 

Check the correct number of boxes below. Then go to the chart.

You:

Born before January 2, 1948

Blind

Your spouse, if claiming spouse's exemption:

Born before January 2, 1948

Blind

Total number of boxes checked

IF your filing status is...

AND the number in the box above is...

THEN your standard deduction is...

Single

1

$7,400

2

8,850

Married filing jointly

1

$13,050

or Qualifying

2

14,200

widow(er) with

3

15,350

dependent child

4

16,500

Married filing

1

$7,100

separately

2

8,250

3

9,400

4

10,550

Head of household

1

$10,150

2

11,600

*If someone else can claim you (or your spouse if filing jointly) as a dependent, use Table 20-3 instead.

       

Table 20-3

Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse if filing jointly) as a dependent.

Check the correct number of boxes below. Then go to the worksheet.

You:

Born before January 2, 1948

Blind

Your spouse, if claiming spouse's exemption:

Born before January 2, 1948

Blind

Total number of boxes checked

1.

Enter your earned income (defined below). If none, enter -0-.

1.

2.

Additional amount.

2.

$300

3.

Add lines 1 and 2.

3.

4.

Minimum standard deduction.

4.

$950

5.

Enter the larger of line 3 or line 4.

5.

6.

Enter the amount shown below for your filing status.

Single or Married filing separately—$5,950

Married filing jointly—$11,900

Head of household—$8,700

6.

7.

Standard deduction.

a.

Enter the smaller of line 5 or line 6. If born after January 1, 1948, and not blind, stop here. This is your standard deduction. Otherwise, go on to line 7b.

7a.

b.

If born before January 2, 1948, or blind, multiply $1,450 ($1,150 if married) by the number in the box above.

7b.

c.

Add lines 7a and 7b. This is your standard deduction for 2012.

7c.

Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. It also includes any amount received as a scholarship that you must include in your income.

           

What's New

Standard mileage rate. The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 23 cents per mile. See Transportation under What Medi-cal Expenses Are Includible.

What's New

Standard mileage rate. For 2012, the stand-ard mileage rate for the cost of operating your car for business use is 55 cents per mile.

Car expenses and use of the standard mile-age rate are explained under Transportation Ex-penses, later.

Depreciation limits on cars, trucks, and vans. For 2012, the first-year limit on the total section 179 deduction, special depreciation al-lowance, and depreciation deduction for cars increases to $11,160 ($3,160 if you elect not to claim the special depreciation allowance). For trucks and vans the first-year limit has in-creased to $11,360 ($3,360 if you elect not to claim the special depreciation allowance). For more information see Depreciation limits in Pub-lication 463.

Table 26-2. How To Prove Certain Business Expenses

IF you have expenses for...

THEN you must keep records that show details of the following elements...

Amount

Time

Place or Description

Business Purpose and Business Relationship

Travel

Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories such as taxis, fees and tips, etc.

Dates you left and returned for each trip and number of days spent on business.

Destination or area of your travel (name of city, town, or other designation).

Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Relationship: N/A

Entertainment

Cost of each separate expense. Incidental expenses such as taxis, telephones, etc., may be totaled on a daily basis.

Date of entertainment. (Also see Business Purpose.)

Name and address or location of place of entertainment. Type of entertainment if not otherwise apparent. (Also see Business Purpose.)

Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. For entertainment, the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion: the date, place, nature, and duration of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. For entertainment, you must also prove that you or your employee was present if the entertainment was a business meal.

Gifts

Cost of the gift.

Date of the gift.

Description of the gift.

Transportation

Cost of each separate expense. For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year.

Date of the expense. For car expenses, the date of the use of the car.

Your business destination.

Purpose: Business purpose for the expense. Relationship: N/A

               

What's New

Standard mileage rate. Generally, if you claim a business deduction for work-related ed-ucation and you drive your car to and from school, the amount you can deduct for miles driven from January 1, 2012, through Decem-ber 31, 2012, is 55 cents per mile. For more information, see Transportation Expenses un-der What Expenses Can Be Deducted.

What's New

Standard mileage rate. The 2012 rate for business use of a vehicle is 55 cents per mile.

 

IF a child was born on...

THEN, at the end of 2012, the child is considered to be...

January 1, 1995

18*

January 1, 1994

19**

January 1, 1989

24***

*This child is not under age 18. The child meets condition 3 only if the child did not have earned income that was more than half of the child's support.**This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support.***Do not use Form 8615 for this child.

 

Reminders

Taxpayer identification number needed for each qualifying person. You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social se-curity number) of each qualifying person. See Taxpayer identification number under Qualify-ing Person Test, later.

You may have to pay employment taxes. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employ-ment taxes. Usually, you are not a household employer if the person who cares for your de-pendent or spouse does so at his or her home or place of business. See Employment Taxes for Household Employers, later.

What's New

Form 8812. Form 8812 is no longer available to figure the additional child tax credit. Instead, use Parts II through IV of Schedule 8812 (Form 1040A or 1040) to figure the additional child tax credit for 2012.

Schedule 8812. Schedule 8812 (Form 1040A or 1040) is new for 2012. It includes a Part I to be completed by taxpayers claiming a child tax credit for a child identified by an IRS individual taxpayer identification number (ITIN) instead of a social security number (SSN). Parts II through IV of Schedule 8812 are used to figure the addi-tional child tax credit for 2012.

Table 34-1. Comparison of Education Credits

Caution. You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student.

 American Opportunity Credit

Lifetime Learning Credit

Maximum credit

Up to $2,500 credit per eligible student

Up to $2,000 credit per return

Limit on modified adjusted gross income (MAGI)

$180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)

$124,000 if married filing jointly; $62,000 if single, head of household, or qualifying widow(er)

Refundable or nonrefundable

40% of credit may be refundable

Credit limited to the amount of tax you must pay on your taxable income

Number of years of postsecondary education

Available ONLY if the student had not completed the first 4 years of postsecondary education before 2012

Available for all years of postsecondary education and for courses to acquire or improve job skills

Number of tax years credit available

Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed)

Available for an unlimited number of years

Type of program required

Student must be pursuing a program leading to a degree or other recognized education credential

Student does not need to be pursuing a program leading to a degree or other recognized education credential

Number of courses

Student must be enrolled at least half time for at least one academic period beginning during the tax year

Available for one or more courses

Felony drug conviction

At the end of 2012, the student had not been convicted of a felony for possessing or distributing a controlled substance

Felony drug convictions do not make the student ineligible

Qualified expenses

Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance

Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)

Payments for academic periods

Payments made in 2012 for academic periods beginning in 2012 or beginning in the first 3 months of 2013

       

What's New

Earned income amount is more. The maxi-mum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:

 

You have three or more qualifying children and you earned less than $45,060 ($50,270 if married filing jointly),

You have two qualifying children and you earned less than $41,952 ($47,162 if mar-ried filing jointly),

You have one qualifying child and you earned less than $36,920 ($42,130 if mar-ried filing jointly), or

You do not have a qualifying child and you earned less than $13,980 ($19,190 if mar-ried filing jointly).

Your adjusted gross income also must be less than the amount in the above list that applies to you. For details, see Rules 1 and 15.

Investment income amount is more. The maximum amount of investment income you can have and still get the credit has increased to $3,200. See Rule 6.

Reminders

Increased EIC on certain joint returns. A married person filing a joint return may get more EIC than someone with the same income but a different filing status. As a result, the EIC table has different columns for married persons filing jointly than for everyone else. When you look up your EIC in the EIC Table, be sure to use the correct column for your filing status and the number of children you have.

Online help. You can use the EITC Assistant at www.irs.gov/eitc to find out if you are eligible for the credit. The EITC Assistant is available in English and Spanish.

EIC questioned by IRS. The IRS may ask you to provide documents to prove you are entitled to claim the EIC. We will tell you what docu-ments to send us. These may include: birth cer-tificates, school records, medical records, etc. The process of establishing your eligibility will delay your refund.

 

First, you must meet all the rules in this column.

Second, you must meet all the rules in one of these columns, whichever applies.

Third, you must meet the rule in this column.

 

Part A.Rules for Everyone

Part B. Rules If You Have a Qualifying Child

Part C. Rules If You Do Not Have a Qualifying Child

Part D.Figuring and Claiming the EIC

 

1. Your adjusted gross income (AGI) must be less than:• $45,060 ($50,270 for married filing jointly) if you have three or more qualifying children, • $41,952 ($47,162 for married filing jointly) if you have two qualifying children, • $36,920 ($42,130 for married filing jointly) if you have one qualifying child, or • $13,980 ($19,190 for married filing jointly) if you do not have a qualifying child.

2. You must have a valid social security number. 3. Your filing status cannot be "Married filing separately."4. You must be a U.S. citizen or resident alien all year. 5. You cannot file Form 2555 or Form 2555-EZ (relating to foreign earned income).6. Your investment income must be $3,200 or less. 7. You must have earned income.

8. Your child must meet the relationship, age, residency, and joint return tests. 9. Your qualifying child cannot be used by more than one person to claim the EIC. 10. You cannot be a qualifying child of another person.

11. You must be at least age 25 but under age 65. 12. You cannot be the dependent of another person. 13. You cannot be a qualifying child of another person.14. You must have lived in the United States more than half of the year.

15. Your earned income must be less than:• $45,060 ($50,270 for married filing jointly) if you have three or more qualifying children, • $41,952 ($47,162 for married filing jointly) if you have two qualifying children, • $36,920 ($42,130 for married filing jointly) if you have one qualifying child, or • $13,980 ($19,190 for married filing jointly) if you do not have a qualifying child.

 

EIC Eligibility Checklist

 

You may claim the EIC if you answer "Yes" to all the following questions.*

Yes

No

1.

Is your AGI less than:

$13,980 ($19,190 for married filing jointly) if you do not have a qualifying child,

$36,920 ($42,130 for married filing jointly) if you have one qualifying child,

$41,952 ($47,162 for married filing jointly) if you have two qualifying children, or

$45,060 ($50,270 for married filing jointly) if you have more than two qualifying children?

(See Rule 1.)

2.

Do you, your spouse, and your qualifying child each have a valid SSN? (See Rule 2.)

3.

Is your filing status married filing jointly, head of household, qualifying widow(er), or single? (See Rule 3.) Caution: If you or your spouse is a nonresident alien, answer "Yes" only if your filing status is married filing jointly. (See Rule 4.)

4.

Answer "Yes" if you are not filing Form 2555 or Form 2555-EZ. Otherwise, answer "No." (See Rule 5.)

5.

Is your investment income $3,200 or less? (See Rule 6.)

6.

Is your total earned income at least $1 but less than:

$13,980 ($19,190 for married filing jointly) if you do not have a qualifying child,

$36,920 ($42,130 for married filing jointly) if you have one qualifying child,

$41,952 ($47,162 for married filing jointly) if you have two qualifying children, or

$45,060 ($50,270 for married filing jointly) if you have more than two qualifying children?

(See Rules 7 and 15.)

7.

Answer "Yes" if you (and your spouse if filing a joint return) are not a qualifying child of another taxpayer. Otherwise, answer "No." (See Rules 10 and 13.)

STOP:

If you have a qualifying child, answer questions 8 and 9 and skip 10 – 12. If you do not have a qualifying child, skip questions 8 and 9 and answer 10 – 12.*

8.

Does your child meet the relationship, age, residency, and joint return tests for a qualifying child? (See Rule 8.)

9.

Is your child a qualifying child only for you? Answer "Yes" if (a) your qualifying child does not meet the tests to be a qualifying child of any other person or (b) your qualifying child meets the tests to be a qualifying child of another person but you are the person entitled to treat the child as a qualifying child under the tiebreaker rules explained in Rule 9. Answer "No" if the other person is the one entitled to treat the child as a qualifying child under the tiebreaker rules.

10.

Were you (or your spouse if filing a joint return) at least age 25 but under 65 at the end of 2012? (See Rule 11.)

11.

Answer "Yes" if you (and your spouse if filing a joint return) cannot be claimed as a dependent on anyone else's return. Answer "No" if you (or your spouse if filing a joint return) can be claimed as a dependent on someone else's return. (See Rule 12.)

12.

Was your main home (and your spouse's if filing a joint return) in the United States for more than half the year? (See Rule 14.)

*

PERSONS WITH A QUALIFYING CHILD: If you answered "Yes" to questions 1 through 9, you can claim the EIC. Remember to fill out Schedule EIC and attach it to your Form 1040 or Form 1040A. You cannot use Form 1040EZ. If you answered "Yes" to questions 1 through 7 and "No" to question 8, answer questions 10 through 12 to see if you can claim the EIC without a qualifying child.

PERSONS WITHOUT A QUALIFYING CHILD: If you answered "Yes" to questions 1 through 7, and 10 through 12, you can claim the EIC.

If you answered "No" to any question that applies to you: You cannot claim the EIC.

What's New

Adoption credit. The maximum adoption credit is $12,650 for 2012. The credit is nonre-fundable after 2011. See Adoption Credit.

Alternative motor vehicle credit. You cannot claim this credit for plug-in electric motor vehi-cle conversions after 2011. See Alternative Mo-tor Vehicle Credit.

Plugin electric drive motor vehicle credit. The credit is now available for certain two- or three-wheeled vehicles acquired after 2011 and before 2014. See Plug-in Electric Drive Motor Vehicle Credit.

Firsttime homebuyer credit. This credit has expired. If you have to repay this credit, see Form 5405, Repayment of the First-Time Homebuyer Credit, and its instructions. You may be able to repay the credit without filing Form 5405. For more information, see the Form 1040 instructions for line 59b.

Excess withholding of social security and railroad retirement tax. Social security tax and tier 1 railroad retirement (RRTA) tax were both withheld during 2012 at a rate of 4.2% of wages up to $110,100. If you worked for more than one employer and had too much social se-curity or RRTA tax withheld during 2012, you may be entitled to a credit for the excess with-holding. See Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld.

1040a:

What's New

For information about any additional changes to the 2012 tax law or any other devel-opments affecting Form 1040A or its instructions, go to www.irs.gov/form1040a.

Tax benefits extended. Several temporary tax benefits have been extended through 2013, including the following.

Deduction for educator expenses in figuring adjusted gross income (line 16).

Tuition and fees deduction (line 19).

Exclusion from income of qualified charitable distribu-tions (see instructions for line 11a and 11b).

Standard mileage rates. The 2012 rate for business use of your vehicle remains 55 cents a mile. The 2012 rate for use of your vehicle to get medical care or to move is decreased to 23 cents a mile.

Roth IRAs. If you converted or rolled over an amount to a Roth IRA in 2010 and did not elect to report the taxable amount on your 2010 return, you generally should have repor-ted half of it on your 2011 return. Report the rest on your 2012 return. Report the amount that is taxable on your 2012 return on line 11b (for conversions from IRAs) or 12b (for rollovers from qualified retirement plans). See the instructions for lines 11a and 11b and lines 12a and 12b.

Designated Roth accounts. If you rolled over an amount from a 401(k) or 403(b) plan to a designated Roth account in 2010 and did not elect to report the taxable amount on your 2010 re-turn, you generally should have reported half of it on your 2011 return. Report the rest on your 2012 return. See the instructions for lines 12a and 12b.

Schedule 8812. Use Schedule 8812 (Form 1040A or 1040) to figure your additional child tax credit for 2012. Schedule 8812 is new for 2012. Form 8812 is no longer in use. See the instruc-tions for line 39.

Identity Protection Personal Identification Number (IP PIN). If we sent you an IP PIN, see Identity Protection PIN after the instructions for line 46 to find out how to use it.

Mailing your return. If you are filing a paper return, you may be mailing it to a different address this year because the IRS has changed the filing location for several areas. See Where Do You File? at the end of these instructions.

Most tax return preparers are now required to use IRS e-file. If you are asked if you want e-file , just give it a try. IRS e-file is now the norm, not the exception. Most states also use electronic filing.

 

Do you have a balance due or owe estimated taxes? You can pay electronically either online or by phone, using your bank account or a credit or debit card. If you e-file your return, you can also schedule your payment by Electronic Funds Withdrawal or by credit or debit card.

It’s convenient! You control when your payment is submitted and processed, and receive confirmation of your payment.

It’s secure! The IRS uses the latest encryption technology to transmit your payment, and does not store your bank information.

It’s green! Electronic payments are paperless, so no check to write and no voucher to mail.

When and where should you file?

File Form 1040 by April 15, 2013. If you file after this date, you may have to pay interest and penalties.

 

 

If you are a high-income household making more than $400,000 (single) or $450,000 (married filing joint), your tax bracket will be up to 39.6% from 35%. However, this will not affect your 2012 income tax return. Those in the new high tax bracket will also be subject to a capital gains rate of 20% - up from 15% as well as the 3.8% surcharge from the Affordable Care Act.

In a speech following the congressional vote, President Barack Obama declared that the changes pushed through will not affect 98% of Americans.

In the fiscal cliff legislation, the Pease itemized deduction phase-out is reinstated and the personal exemption phase-out will be reinstated. The thresholds are $300,000 for married filing joint, $275,000 for head of household, and $250,000 for single. This means that if you make that kind of money, you will not be allowed to take all of your itemized deductions. Your personal exemptions – another subtraction from your income before taxes are calculated – will be reduced.

Employees’ net pay is also now 2% lower as the payroll tax holiday was allowed to expire. This means the full 6.2% of Social Security will now be withheld from your pay. The holiday lasted two years, and this increased percentage will help continue funding to the Social Security system. The wage ceiling on which Social Security is taxed has been increased to $113,700. Medicare tax is unlimited, but if you earn more than $200,000 an additional 0.9% will be withhold.

Congress patched the Alternative Minimum tax and adjusted it for inflation, which will keep taxes lower for the 60 million Americans that would have been affected.

While Congress did take a scalpel to some tax deductions  others were left untouched and extended through 2013:

Discharge of qualified principal residence exclusion. Filers going through a foreclosure or short sale who may have had loan forgiveness should look into this as it will exclude most, if not all, of the forgiven amount from taxable income

Educators may continue to deduct $250 in related job expenses as an adjustment to income

Mortgage insurance premiums may be deducted as mortgage interest

The deduction for state and local sales taxes may still be taken

The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit will all be extended through 2017;

Tuition costs may be deducted as an adjustment to income

IRA-to-charity exclusion from taxable income remains including a special provision that allows transfers made in January 2013 to be treated as made in 2012.

Beginning on Jan. 1, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 56.5 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

The Fiscal Year 2012 Enforcement and Service Results tables detail the audit, collection and taxpayer service numbers. Additional information is available in a document about the enforcement and service results. Fiscal Year 2012 began on Oct. 1, 2011, and ended on Sept. 30, 2012.

 

The American Recovery and Reinvestment Act of 2009: Information Center

Update Oct. 31, 2011 — Some of the credits and other provisions described on this page, which were to change or expire at the end of 2010, were extended by the Tax Relief and Job Creation Act of 2010. Additional updated information is noted, where applicable, on the web pages relating to these specific credits and other provisions.

Update July 6, 2010 — For those claiming the homebuyer credit, the deadline for closing (going to settlement) on home purchases was extended from June 30 to Sept. 30, 2010. 

Información en Español

Information for Individuals

Can you benefit from Recovery Act tax credits? Try the White House Tax Savings Tool to find out.

 Many of the Recovery Act provisions are geared toward individuals:

·         Homebuyer Credit. Homebuyers who purchased by April 30, 2010, and settled by Sept. 30, 2010, may be eligible for a credit of up to $8,000. Documentation requirements apply. See thefirst-time homebuyer page for more.

·         COBRA. Workers who lost their jobs between Sept. 1, 2008, and May 31, 2010, may qualify forreduced COBRA health insurance premiums for up to 15 months.

·         Education benefits. The American Opportunity Tax Credit and enhanced benefits for 529 college savings plans help families and students find ways to pay higher education expenses.

·         Home energy efficiency and renewable energy incentives. See what you can do to reap tax rewards.

·         Earned Income Tax Credit. The EITC was bigger in  2009 and 2010.

·         Additional child tax credit. More families qualified for the ACTC in 2009 and 2010.

·         Making Work Pay Tax Credit. This credit meant more take-home pay for many Americans in 2009 and 2010. Make sure enough tax is withheld from your pay with the help of the IRS withholding calculator. See Making Work Pay for more.

·         $250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment was paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board in 2009 or, in some cases, 2010. To verify whether you received it, call 1-866-234-2942 and select Option 1 or visit Did I Receive a 2010 Economic Recovery Payment? on this website.

·         Money Back for New Vehicles. Taxpayers who bought new cars and certain other new vehicles in 2009 can deduct the state and local sales taxes they paid as well as other taxes and fees they paid in states with no sales tax.

·         Increased Transportation Subsidy. Employer-provided benefits for transit and parking rose in 2009.

·         Up to $2,400 in Unemployment Benefits Tax Free in 2009. Individuals should check their tax withholding.

·         Health Coverage Tax Credit. This credit increased from 65 percent to 80 percent of qualified health insurance premiums, and more people are eligible.

Information for Businesses

The following Recovery Act provisions affect businesses:

·         Making Work Pay Tax Credit. The 2010 withholding rates, contained in Notice 1036, reflected reduced withholding. An optional withholding procedure was available for pension plan administrators.

·         Work Opportunity Tax Credit. This expanded credit added returning veterans and "disconnected youth" to the list of new hires that businesses may claim.

·         COBRA: Health Insurance Continuation Subsidy. The IRS has extensive guidance for employers, including an updated Form 941.

·         Energy Efficiency and Renewable Energy Incentives. See what businesses can do to reap tax rewards.

·         Net Operating Loss Carryback. Small businesses can offset losses by getting refunds on taxes paid up to five years ago. Find information on carrybacks, an expanded section 179 deduction and other business-related provisions. The Worker, Homeownership And Business Assistance Act Of 2009 (WHBAA) expanded the five-year NOL carryback to most businesses.

·         Municipal Bond Programs. New ways to finance school construction, energy and other public projects . 

 Related Items:

·         IRS news releases, multimedia and legal guidance

·         Marketing products for partners

·         Summary of the key provisions from the Senate Finance and House Ways and Means committees  

 

By law, reporting began in early 2012 for payment card and third-party network transactions that occurred in 2011.

General FAQs on Payment Card and Third Party Network Transactions

I received Form 1099-K. How do I report it on my tax return?

Separate reporting of these transactions is not required. However, you should follow the return instructions on the form you are completing to report your gross receipts or sales. You should report items that qualify as a trade or business expense on the appropriate line item of Schedules C, E, and F.

What is a participating payee?

A participating payee is:

·         Any person who accepts a payment card as payment, or

·         Any person who accepts payment made by a third party settlement organization on behalf of the purchaser or customer.

Why is this reporting necessary?

This reporting is required by law. Third party information reporting has been shown to increase voluntary tax compliance, and improve collections and assessments within IRS.

How are reportable transactions to be reported to IRS?

Gross payment card and third party network transaction amounts are reported on the Form 1099-K,Payment Card and Third Party Network Transactions.

What information must be reported on the Form 1099-K?

The gross amount of reportable payment transactions for the calendar year and its corresponding months are required to be reported for each payee. The reporting of both annual and monthly amounts is necessary to resolve differences between information returns and tax returns of fiscal year filers. The name, address, and taxpayer identification number of each participating payee must also be included on the form.

When are Forms 1099-K due?

Information reporting for payment card and third party network transactions is due to the IRS on the last day of February of the year following the transactions. If filing electronically, it is due the first day of April of the year following the transactions.

May Forms 1099-K be filed electronically?

Yes. Those required to file may do so through the FIRE (Filing Information Returns Electronically) system. If a payment settlement entity has more than 250 individual information returns to file in any calendar year, they all must be submitted electronically. Existing users may log into FIRE. New users may create an account and test their file before submitting.

For more information, review Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically. If you are considering filing on paper, review General Instructions for Certain Information Returns.

What are payee statements and when are they due?

Every payment settlement entity required to file a Form 1099-K must also furnish to each participating payee a written statement with the same information reported to the IRS. The statements must be furnished to the payee by January 31 of the year following the transactions.

May payee statements be furnished to participating payees electronically?

Yes. With the participating payee’s prior consent, payee statements may be provided electronically. This consent may be granted electronically. (See Treasury regulations section 1.6050W-2 for instructions for receiving consent from payees.) If a payee statement is furnished electronically, an email address for the reporting entity may be provided in lieu of a phone number.

Is there a de minimis exception for Forms 1099-K by third party settlement organizations?  

There is a “de minimis” exception from reporting for a third party settlement organization with respectto third party network transactions.   If payments to a participating payee exceed $20,000 and exceed 200 transactions within the calendar year they must file for that participating payee.

Does the de minimis exception described above apply to payment card transactions?

No. The “de minimis” exception does not apply to payment card transactions settled by merchant acquiring entities.

What constitutes the "gross amount" of reportable transactions?

The "gross amount" of reportable transactions means the total unadjusted dollar amount of aggregate payment transactions for each participating payee.  

Are foreign payment settlement entities subject to the reporting requirements?

Yes. The statute and regulations establish that a "payment settlement entity" may be a domestic or foreign entity.

Are payment settlement entities required to report the transactions of governmental units, whether state or federal?

Yes. The term "participating payees" includes any governmental unit.

What is payment card and third party network reporting?

Under section 6050W of the Internal Revenue Code, payment settlement entities (merchant acquiring entities and third party settlement organizations) must report payment card and third party network transactions. This reporting requirement began in early 2012 for payment card and third party network transactions that occurred in 2011.

Are purchases made with stored-value cards or gift cards reportable transactions?

It depends.

·         Purchases are not reportable when the card is accepted as payment by the issuer or someone who is related to the issuer of the card (such as a subsidiary company or the company itself). Under these circumstances, the stored-value cards do not fit the definition of a "payment card" and purchases made with such cards are therefore not reportable. 

·         Purchases are reportable when the stored-value card is accepted by a network of persons unrelated to the issuer and each other.

For the definition of unrelated person see section 267(b) of the Internal Revenue Code, including the application of section 267(b) and (e)(3), or section 707(b)(1).

If transactions are already reportable on other information returns, must they be reported again by payment settlement entities?

No. If a transaction is reportable by a PSE both under section 6041 or section 6041 A(a) and under section 6050W, the transaction must be reported on a Form 1099-K and not a Form 1099-MISC.

If a worker at a trade or business is an independent contractor, and the independent contractor swipes payment cards on behalf of the trade or business in the normal course of business (in other words, the trade or business, not the independent contractor, receives the proceeds), should the trade or business report payments to the worker on Form 1099-K or Form 1099-MISC?

In this situation, the trade or business should continue to report payments made to independent contractors on Form 1099-MISC as they have done in the past. However, the business will receive a Form 1099-K for these payment card transactions from the payment settlement entity.

How can payee TINs be verified?

Verification of payee TINs is done through the "Taxpayer Identification Number (TIN) Matching Program."   

For further information please visit General Instructions for Certain Information Returns - Introductory Material or call 1-866-255-0654.

Can the entity responsible for filing Form 1099-K contract with a third party to prepare and file these returns?

Yes. However, the entity responsible for filing (i.e., the entity that submits the instructions to transfer funds) is liable for any applicable penalties under sections 6721 and 6722 if the reporting requirements are not met. In addition, the name, address, and Taxpayer Identification Number of the entity responsible for filing must be reported on the Form 1099-K in the box for the filer's information.

What is Form 1099-K?

The Form 1099-K, Payment Card and Third Party Network Transactions, is an information return that reports the gross amount of reportable transactions for the calendar year to the IRS.

If you receive a Form 1099-K, you should retain it for your records and may use it to assist you in completing your tax returns.

I filed Form 1099-K last year. What changes were made for tax year 2012?

IRS modified tax year 2012 Form 1099-K to improve form clarity, reduce taxpayer burden, and improve compliance effectiveness. These changes include:

·         Modifying the title from Merchant Card to Payment Card to align with the statute

·         Adding a box that includes the number of purchase transactions (not including refund transitions) that is optional for tax year 2012

·         Adding a check box for payment type (payment card or third party network)

Additionally, the instructions for Form 1099-K were changed to improve clarity.  They include:  

·         Changing “tax year” to “calendar year” to prevent confusion

·         Adding language that defines the term “optional”

·         Adding instructions on how to complete the form if a payee has both payment card and third party network transactions from the same payment settlement entity.

What are payment settlement entities?

A payment settlement entity is an entity that makes payment in settlement of a payment card transaction or third party network transaction. Payment Settlement Entities are often referred to as “PSEs” and can take one of two forms:

·         Merchant Acquiring Entity - is a bank or other organization that has the contractual obligation to make payment to participating payees in settlement of payment card transactions

·         Third Party Settlement Organization - is the central organization that has the contractual obligation to make payment to participating payees of third party network transactions

If I use a payment card (or a third party settlement organization) to pay for a purchase, do these payment card reporting rules affect me and will I receive a Form 1099-K?

No. Individuals will not receive a Form 1099-K for making a purchase. These provisions affect only businesses or entities that accept payment cards or use third party network settlement organizations for payment of goods or services.

Do payment settlement entities adjust the "gross amount" to account for fees, refunds, charge-backs, or other costs and refunded amounts?

No. The "gross amount" is the total unadjusted dollar amount of the payment transactions for a participating payee. This amount is not to be adjusted to account for any fees, refunds, or any other amounts.

What do I do with the information on Form 1099-K?

The Form 1099-K is an information return. Use this information return in conjunction with your other tax records to determine your correct tax. To get further information on record keeping, check out Publication 552, for individuals or Publication 583, Starting a Business and Keeping Record.  

How will IRS use the data?

The IRS will use the data from the Form 1099-K to develop:

·         taxpayer education and outreach products and services

·         new examination and collection approaches.    

What do I do if I think my Form 1099-K is incorrect?

If you believe the information on a Form 1099-K is incorrect, the form has been issued in error, or you have a question relating to the form, contact the filer, whose name appears in the upper left corner on the front of the form.

Or you may contact the payer, or PSE, whose name and phone number are shown in the lower left corner of the form. If you cannot get this form corrected, you may attach an explanation to your tax return and report your income correctly.

To get the further information on Information Returns, check out the General Instructions for Certain Information Returns.

Where can I call if I have a question on the Form 1099-K?

Payors who have questions about the Form 1099-K itself, may call the IRS at 1-866-455-7438.  Payees who have questions about the information on a Form 1099-K they have received should contact the filer, whose name appears in the upper left corner on the form.  

I own a small business and also have a not-for-profit hobby. I do not accept payment cards for payment for either, but I do use a credit card and third party settlement organization to make purchases for both. Do the payment card reporting rules affect me?

No. The provisions for payment settlement entity reporting affect only those businesses or entities that accept these forms of payment for goods or services.

Since you do not accept these forms of payments, you will not receive a Form 1099-K for your sales.

Additionally, you will not receive a Form 1099-K for your purchases. Individuals and businesses only receive Form 1099-K for receiving payment for goods and services in reportable transactions.

I occasionally sell items on an Internet auction site and accept payment cards. How do the payment settlement entity reporting rules affect me?

If you accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of proceeds for the goods or services purchased from you through the use of a payment card in a calendar year.

Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K from that organization only if:

• the total number of your transactions exceeds 200 AND
• the aggregate value exceeds $20,000 in a calendar year

If I have a holiday craft business and accept payment cards for payments, how do the payment settlement entity reporting rules affect me?

If you are set up to accept payment cards as a form of payment, you will receive a Form 1099-K for the gross amount of the proceeds for the goods or services purchased from you through the use of a payment card in a calendar year.

Further, if you accept payments from a third party settlement organization, you should receive a Form 1099-K only if:

·         the total number of your transactions exceeds 200 AND

·         the aggregate value exceeds $20,000 in a calendar year.

 

 

Payment Card Transactions FAQs

What is a merchant acquiring entity?

Often called an "acquiring" or "merchant" bank, a merchant acquiring entity is the bank or other organization that has the contractual obligation to make payment to a merchant or other business, known as a "participating payee," in settlement of payment card transactions. Under Treasury regulations section 1.6050W-1, a merchant acquiring entity makes payment in settlement of a payment card transaction if it submits the instruction to transfer funds to the participating payee's account. 

What qualifies as a "payment card?'

The term payment card includes credit cards, debit cards, and stored-value cards, as well as payment through any distinctive marks of a payment card (such as a credit card number). 

A payment card is issued under an agreement that provides standards and mechanisms for settling the transactions between a merchant acquiring bank or similar entity and the providers who accept the cards as payment. 

Who is responsible for reporting payment card transactions?

The merchant acquiring entity that submits the instructions to transfer funds to the participating payee is responsible for reporting the gross amount of reportable transactions. 

A merchant acquiring entity might outsource the processing of the transactions to a processor that may share the contractual obligation to pay the merchant. When both a merchant acquiring entity and a processor have a contractual obligation to pay the merchant, the entity that submits the instructions to transfer funds to the merchant's account is responsible for preparing and furnishing a payee statement to the participating payee and filing the Form 1099-K with the IRS. 

Who reports payment card transactions when a payment settlement entity contracts with a third party, such as an electronic payment facilitator, to settle reportable transactions?

The entity submitting the instructions to transfer funds to the participating merchant's account is responsible for reporting payment card transactions. In this case, the third party entity is responsible for reporting, because it is the entity submitting the instructions to transfer the funds in settlement of the transactions. 

What is a Merchant Category Code (MCC)?

An MCC is a four-digit number used by the payment card industry to classify businesses by the goods of services they provide. There are approximately 600 MCCs representing different types of businesses. Some examples are: 441- Cruise Lines; 5462 - Bakeries; and, 5532 - Automotive Tire Stores.

How should transactions be reported if a merchant has receipts classified under more than one MCC?

If a merchant has receipts classified under more than one MCC, the reporting entity may either:

·         File separate Forms 1099-K reporting the gross reportable transaction amounts attributable to each MCC, or

·         File a single Form 1099-K reporting gross reportable transaction amounts and the MCC that corresponds to the largest portion of total gross receipts. 

Additionally, if a reporting entity (or its processor) employs an industry classification system other than or in addition to MCCs, the reporting entity should assign to each payee an MCC that most closely corresponds to the description of the payee's business. 

 

Third Party Network Transactions FAQs

What is a third party settlement organization?

A third party settlement organization is the central organization that has the contractual obligation to make payments to participating payees (generally, a merchant or business) in a third party payment network.

Characteristics of a third party payment network include:

·         The existence of a central organization with whom a substantial number of providers of goods and services (who are unrelated to the central organization) have established accounts

·         an agreement between the central organization and the providers to settle transactions between the providers and purchasers

·         the establishment of standards and mechanisms for settling such transactions, and

·         the guarantee of payment in settlement of such transactions.

The most common example of a third party settlement organization is an online auction-payment facilitator, which operates as only an intermediary between buyer and seller by transferring funds between accounts in settlement of an auction/purchase.

Third party settlement organizations charge sellers a fee for facilitating the transaction. Under the reporting requirements, these entities must report the gross reportable transactions of the businesses to which they make payments provided the payee satisfies certain transaction volume and dollar thresholds.

Do healthcare networks fit within the definition of a third party settlement organization?

Health insurance carriers that operate a healthcare network do not fit within the definition of a third party settlement organization because they do not transfer funds from buyers to sellers.

Do accounts payable departments fit the definition of a third party settlement organization?

No. An in-house accounts-payable department is not a third party settlement organization because it is not a "third-party." It is an internal processor of payments.

Who is responsible for reporting third party network transactions?

The third party settlement organization or its electronic payment facilitator is responsible for reporting the gross reportable transaction amounts paid to participating payees in their network.

Does an automated clearing house (ACH) qualify as a third party settlement organization?

No. An automated clearing house merely processes electronic payments between buyers and sellers through wire transfer, electronic checks, and direct deposit.

Does a third party settlement organization have to report Merchant Category Codes (MCC)?

No. Third party settlement organizations do not use MCC codes to classify payees. Therefore, they would generally not complete Box 2 on the Form 1099-K.

 

Tax Benefits for Education: Information Center

Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education.

·         A tax credit reduces the amount of income tax you may have to pay.

·         A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.

·         Certain savings plans allow the accumulated interest to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.

·         An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit. 


Credits

American Opportunity Credit

Under the American Recovery and Reinvestment Act (ARRA), more parents and students qualify for a tax credit, the American opportunity credit, to pay for college expenses.

The American opportunity credit originally modified the existing Hope credit for tax years 2009 and 2010, and was later extended for an additional two years — 2011 and 2012 — making the benefit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.

Special rules applied to students attending college in a Midwestern disaster area for tax-year 2009, only, when taxpayers could choose to claim either a special expanded Hope credit of up to $3,600 for the student or the regular American opportunity credit.

If you have questions about the American opportunity credit, these questions and answers might help. For more information, see American opportunity credit.

Hope Credit

The Hope credit generally applies to 2008 and earlier tax years. It helps parents and students pay for post-secondary education. The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

The Hope credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents’ college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time.

Generally, you can claim the Hope credit if all three of the following requirements are met:

·         You pay qualified education expenses of higher education.

·         You pay the education expenses for an eligible student.

·         The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

You cannot take both an education credit and a deduction for tuition and fees (see Deductions, below) for the same student in the same year. In some cases, you may do better by claiming the tuition and fees deduction instead of the Hope credit.

Education credits are claimed on Form 8863, Education Credits (Hope and Lifetime Learning Credits). For details on these and other education-related tax breaks, see IRS Publication 970, Tax Benefits of Education.

Lifetime Learning Credit

The lifetime learning credit helps parents and students pay for post-secondary education.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student. However, a taxpayer cannot claim both the Hope or American opportunity credit and lifetime learning credits for the same student in one year. Thus, the lifetime learning credit may be particularly helpful to graduate students, students who are only taking one course and those who are not pursuing a degree.

Generally, you can claim the lifetime learning credit if all three of the following requirements are met:

·         You pay qualified education expenses of higher education.

·         You pay the education expenses for an eligible student.

·         The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the Hope or American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope or American opportunity credit for one student and the lifetime learning credit for another student in the same year.


Deductions

Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions onSchedule A (Form 1040). This deduction may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.

You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met:

·         You pay qualified education expenses of higher education.

·         You pay the education expenses for an eligible student.

·         The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return.

You cannot claim the tuition and fees deduction if any of the following apply:

·         Your filing status is married filing separately.

·         Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the deduction even if the other person does not actually claim that exemption.

·         Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).

·         You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.

·         You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid.

Student-activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $75,000 ($150,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040's Schedule A.

Qualified Student Loan

This is a loan you took out solely to pay qualified education expenses (defined later) that were:

·         For you, your spouse, or a person who was your dependent when you took out the loan.

·         Paid or incurred within a reasonable period of time before or after you took out the loan.

·         For education provided during an academic period for an eligible student.

Loans from the following sources are not qualified student loans:

·         A related person.

·         A qualified employer plan.

Qualified Education Expenses

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items:

·         Tuition and fees.

·         Room and board.

·         Books, supplies and equipment.

·         Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it is not more than the greater of:

·         The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or

·         The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Business Deduction for Work-Related Education

If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income. An itemized deduction may reduce the amount of your income subject to tax.

If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This may reduce the amount of your income subject to both income tax and self-employment tax.

Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the Hope and lifetime learning credits. You may qualify for these other benefits even if you do not meet the requirements listed above.

To claim a business deduction for work-related education, you must:

·         Be working.

·         Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.

·         File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed.

·         Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, below.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

·         The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer.

·         The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:

·         Is needed to meet the minimum educational requirements of your present trade or business or

·         Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

Education Required by Employer or by Law

Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education is qualifying work-related education if all three of the following requirements are met.

·         It is required for you to keep your present salary, status or job.

·         The requirement serves a business purpose of your employer.

·         The education is not part of a program that will qualify you for a new trade or business.

When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work.

Education to Maintain or Improve Skills

If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments and academic or vocational courses.


Savings Plans

529 Plans

States sponsor 529 plans — qualified tuition programs authorized under section 529 of the Internal Revenue Code — that allow taxpayers to either prepay or contribute to an account for paying a student's qualified higher education expenses. Similarly, colleges and groups of colleges sponsor 529 plans that allow them to prepay a student's qualified education expenses. These 529 plans have, in recent years, become a popular way for parents and other family members to save for a child’s college education. Though contributions to 529 plans are not deductible, there is also no income limit for contributors.

529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books and supplies. For someone who is at least a half-time student, room and board also qualify.

For 2009 and 2010, an ARRA change to tax-free college savings plans and prepaid tuition programs added to this list expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit or tuition and fees deduction.

Coverdell Education Savings Account

This account was created as an incentive to help parents and students save for education expenses. Unlike a 529 plan, a Coverdell ESA can be used to pay a student’s eligible k-12 expenses, as well as post-secondary expenses. On the other hand, income limits apply to contributors, and  the total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

·         Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.

·         There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.

·         Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.

·         If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

For more information, see Tax Tip 2008-59, Coverdell Education Savings Accounts.


Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate. A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

A scholarship or fellowship is tax free only if you meet the following conditions:

·         You are a candidate for a degree at an eligible educational institution.

·         You use the scholarship or fellowship to pay qualified education expenses.

Qualified Education Expenses

For purposes of tax-free scholarships and fellowships, these are expenses for:

·         Tuition and fees required to enroll at or attend an eligible educational institution.

·         Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses.  

Expenses that Don’t Qualify

Qualified education expenses do not include the cost of:

·         Room and board.

·         Travel.

·         Research.

·         Clerical help.

·         Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.

For more information, see Pub. 970.


Exclusions from Income

You may exclude certain educational assistance benefits from your income. That means that you won’t have to pay any tax on them. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the Hope credit and the lifetime learning credit.

Employer-Provided Educational Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.

Educational Assistance Program

To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

Educational Assistance Benefits

Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items.

·         Meals, lodging, or transportation.

·         Tools or supplies (other than textbooks) that you can keep after completing the course of instruction.

·         Courses involving sports, games, or hobbies unless they:

·         Have a reasonable relationship to the business of your employer, or

·         Are required as part of a degree program.

Benefits over $5,250

If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.

Working Condition Fringe Benefit 

However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.


Related Items:

·         IR-2013-18, IRS To Accept Tax Returns with Education Credits, Depreciation Next Week

·         IR-2013-10, IRS To Accept Returns Claiming Education Credits by Mid-February

·         IR-2009-78, Special IRS Web Section Highlights Back-to-School Tax Breaks; Popular 529 Plans Expanded, New $2,500 College Credit Available

·         Fact Sheet 2009-12, How 529 Plans Help Families Save for College; and How the American Recovery and Reinvestment Act of 2009 Expanded 529 Plan Features

·         529 Plans: Questions and Answers

·         Pub. 970, Tax Benefits for Education

·         Tax Tip 2009-30,Offset Education Costs

·         FS-2009-2, Tax Credits Provide Funds for First-Time Homebuyers, Childcare, Education and More

·         Education Credits

·         Tax Incentives for Higher Education

 

The “What Ifs” for Struggling Taxpayers

Video: What If?

People facing financial difficulties may find that there's a tax impact to events such as job loss, debt forgiveness or tapping a retirement fund. For example, if your income decreased, you may be newly eligible for certain tax credits, such as the Earned Income Tax Credit.

Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. In many cases, there are steps we can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.

 

IRS Combats Identity Theft and Refund Fraud on Many Fronts

FS-2013-2, Revised March 2013

Stopping identity theft and refund fraud is a top priority for the IRS. The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization. For the 2013 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

By late 2012, the IRS assigned more than 3,000 IRS employees — over double from 2011 — to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.

Refund Fraud Detection and Prevention

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

The IRS has expanded our efforts on refund fraud detection and prevention for the 2013 tax season in several ways:

·         For 2013, there has been a significant increase in the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The IRS has dozens of identity theft filters now in place.

·         IRS Criminal Investigation tripled the number of identity theft investigations in fiscal year 2012, starting 900 investigations. Nearly 500 people have been indicted across the country. From October 2012 through March 2013, there have been more than 670 criminal identity theft investigations opened. The criminals being sentenced are spending an average of four years in custody with sentences as long as 20 years.

·         The IRS expanded a pilot program nationwide that allows local law enforcement agencies to obtain tax return data that helps investigate and pursue identity thieves. During the pilot’s first year when it covered nine participating states, the IRS received more than 1,560 waiver requests from over 100 state and local law enforcement agencies.  

·         The IRS is collaborating with more than 130 financial institutions to identify identity theft fraud schemes and block refunds from reaching the hands of identity thieves. This effort has protected hundreds of millions of dollars so far.

Increasing Efforts to Help Victims

The IRS understands that identity theft is a frustrating, complex process for victims. While identity thieves steal information from sources outside the tax system, the IRS is often the first to inform a victim that identity theft has occurred.

In the first three months of 2013, the IRS worked with victims to resolve and close more than 200,000 cases. This is in addition to the expanded Identity Protection PIN (IP PIN) pilot, an initiative to protect victims with previously confirmed cases of identity theft by creating an additional layer of security on these accounts.

While the IRS has made considerable progress in this area, more works remains. Fighting identity theft is an ongoing battle as identity thieves continue to create new ways of stealing personal information and using it for their gain. Identity theft cases are among the most complex handled by the IRS. The IRS is continually reviewing processes and policies to minimize the incidence of identity theft and to help those who find themselves victimized. Among the steps underway to help victims:

·         IP PIN expansion. The IRS continues to expand the number of Identity Protection Personal Identification Numbers (IP PINs) being issued to victims. The IP PIN is a unique identifier that shows that a particular taxpayer is the rightful filer of the return. In 2013, the IRS has issued IP PINs to more than 770,000 taxpayers who have been victimized by identity theft. That’s more than twice as many as the previous year. The IP PIN will allow these individuals to avoid delays in filing returns and receiving refunds.

·         Victim case resolution. The IRS continues to put more and more employees on resolution of victim cases. These are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years. Cases of resolving identity can be complicated by the thieves themselves calling in. The IRS is working hard to streamline its internal process, but much more work remains. A typical case can take about 180 days to resolve, and the IRS is working to reduce that time period.

·         Service options. The IRS is providing information in several ways ranging from a special section on IRS.gov devoted to identity theft to a special phone number available for victims to resolve tax issues. The IRS Identity Protection Specialized Unit is available at 800-908-4490.

More information is available on IRS.gov, including the Taxpayer Guide to Identity Theft.

IRS Criminal Investigation

The IRS’s Criminal Investigation division is a major component of our effort to combat tax-related identity theft. We will continue to utilize the full capabilities and resources to investigate those who steal from taxpayers through identity theft.

In Fiscal Year 2012, the IRS tripled its number of criminal investigations compared to 2011 by initiating nearly 900 investigations regarding identity theft, which resulted in almost 500 indictments.

In January 2013, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions, including 298 indictments, informations, complaints and arrests.

More actions are underway in 2013, touching on states across the nation.

Beyond the criminal actions, IRS enforcement personnel in January 2012 simultaneously conducted a sweep of approximately 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk locations across the country. 

In April 2012, the IRS established a pilot program in Florida, allowing identity theft victims to authorize the IRS to share information with local law enforcement, removing a hurdle previously exploited by identity thieves. The IRS has expanded the pilot to eight more states: Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas. Together, these states represent a large percentage of the overall identity theft refund fraud threat seen at the IRS. More than 100 law enforcement agencies participated in this effort, and over 1,560 waiver forms were received from taxpayers during the program’s first year. The IRS expanded the program nationwide in March 2013.

IRS Criminal Investigation has also worked closely with the Tax Division of the Department of Justice on new guidelines to expedite investigations and criminal prosecutions of these fraudsters to deter identity theft refund fraud. We continue working collaboratively on this effort.

For more information, see the special identity theft section on IRS.gov and IRS Fact Sheet 2013-3,Tips for Taxpayers and Victims about Identity Theft and Tax Returns.

 

Tips for Taxpayers, Victims about Identity Theft and Tax Returns

FS-2013-3, January 2013

The Internal Revenue Service is taking additional steps during the 2013 tax season to protect taxpayers and help victims of identity theft and refund fraud.  

Stopping refund fraud related to identity theft is a top priority for the tax agency. The IRS is focused on preventing, detecting and resolving identity theft cases as soon as possible. The IRS has more than 3,000 employees working on identity theft cases – more than twice the level of a year ago. We have trained more than 35,000 employees who work with taxpayers to recognize and provide assistance when identity theft occurs.

Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.

Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:

Tips to protect you from becoming a victim of identity theft

·         Don’t carry your Social Security card or any documents with your SSN or Individual Taxpayer Identification Number (ITIN) on it.

·         Don’t give a business your SSN or ITIN just because they ask. Give it only when required.

·         Protect your financial information.

·         Check your credit report every 12 months.

·         Secure personal information in your home.

·         Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.

·         Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Mon. - Fri., 7 a.m. - 7 p.m. local time; Alaska & Hawaii follow Pacific Time).

If you believe you’re a victim of identity theft

Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that:

·         More than one tax return for you was filed;

·         You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;

·         IRS records indicate you received more wages than you actually earned or

·         Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change.

If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.

If you did not receive a notice but believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 right away so we can take steps to secure your tax account and match your SSN or ITIN.

Also, fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.

In addition, we recommend you take additional steps with agencies outside the IRS:

·         Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.

·         File a report with the local police.

·         Contact the fraud departments of the three major credit bureaus:

·          

·         Equifax – www.equifax.com, 800-525-6285

·         Experian – www.experian.com, 888-397-3742

·         TransUnion – www.transunion.com, 800-680-7289

          Close any accounts that have been tampered with or opened fraudulently.

More information:

·         http://www.irs.gov/uac/Identity-Protection-Tips

·         Taxpayer Guide to Identity Theft -- http://www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft

Help if you have reported an identity theft case to the IRS and are waiting for your federal tax refund

The IRS is working to speed up and further streamline identity theft case resolution to help innocent taxpayers.

The IRS more than doubled the level of employees dedicated to working identity theft cases between 2011 and 2012.  As the IRS enters the 2013 filing season, we now have more than 3,000 employees working identity theft issues. Despite these efforts, the IRS continues to see a growing number of identity theft cases.

These are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years. Cases of resolving identity can be complicated by the thieves themselves calling in. Due to the complexity of the situation, this is a time-consuming process. Taxpayers are likely to see their refunds delayed for an extended period of time while we take the necessary actions to resolve the matter. A typical case can take about 180 days to resolve, and the IRS is working to reduce that time period.

While the identity theft cases are being worked, the IRS also reminds victims that they need to continue to file their tax returns during this period.

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, they can contact the IRS Identity Protection Specialized Unit, toll-free, at 800-908-4490. If victims can’t get their issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.

More Information

It is a top priority for the IRS to help victims and reduce the time it takes to resolve their cases. In addition, the IRS continues to aggressively expand its efforts to protect and prevent refund fraud involving identity theft before it occurs as well as work with federal, state and local officials to pursue the perpetrators of this fraud.

For more information, see the special identity theft section on IRS.gov and IRS Fact Sheet 2013-2, IRS Combats Identity Theft and Refund Fraud on Many Fronts.

 

IRS Adds Tumblr to Its List of Social Media Platforms

IR-2013-13, Jan. 29, 2013

WASHINGTON — The Internal Revenue Service has added Tumblr to its list of social media platforms. People who want tax information now have another way of accessing helpful tax tips, videos, podcasts and more at Tumblr.

Tumblr is a microblogging platform where users access and share text, photos, videos and other information from their browser, smartphone, tablet or desktop.

The IRS plans to use Tumblr to help share information about important programs to help taxpayers, such as late tax law changes, the Earned Income Tax Credit and Free File. The Tumbler site also makes it easy for partner groups and others to share tax information from the IRS.

“Tax issues touch a wide range of people who use information in many different ways. The IRS Tumblr site provides a new avenue for taxpayers and partner groups to get and share important tax information,” said Terry Lemons, IRS Communications Director. “The new Tumblr platform is part of a larger effort at the IRS to get information to taxpayers when and where they want it.”

The IRS’ growing social media presence already includes YouTube, where viewers can watch IRS channels for short, informative videos in English, Spanish, American Sign Language and other languages. The IRS YouTube channels have more than 100 videos, which have been viewed more than 3.1 million times.

In addition, more than 61,000 people follow the IRS twitter feeds. The latest tax information is available at @IRSnews or @IRSenEspanol. @IRStaxpros covers news for tax professionals, @RecruitmentIRS provides updates for job seekers, and the Taxpayer Advocate Service has information available @YourVoiceAtIRS.

To protect taxpayer privacy, the IRS only uses social media tools to share public information, not to answer personal tax or account questions. It advises taxpayers to never post confidential information, like a Social Security number, on social media sites.

 

IRS Statement on Court Ruling Related to Return Preparers

Update May 16, 2013

Fee amounts collected for scheduled registered tax return preparer test appointments canceled due to the court ordered injunction are being refunded. Additionally, fees collected from return preparers who tested on or after January 18, 2013, the date the test was enjoined, are also being refunded. No additional refund or reimbursement requests related to registered tax return preparer regulation are being provided or considered at this time. E-mail notifications will be provided to those receiving refunds to explain the process. No action is necessary to receive the refund. A credit for the test fee will automatically be made to the account used to pay the fee. It is anticipated that all refunds will be processed by July 19, 2013.

Please review our Frequently Asked Questions and continue to check this site for additional information as it becomes available.

Background

On Friday, Jan. 18, 2013, the United States District Court for the District of Columbia enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not required to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

On Friday, Feb. 1, the court modified its order to clarify that the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). Consistent with this modification, the IRS has reopened the online PTIN system.

We remain confident in our legal authority and committed to protecting taxpayers through implementing reasonable standards in the tax preparation area. Our appeal of the district court opinion was filed on Mar. 29, 2013.

 

Remarks by Steven T. Miller, IRS Acting Commissioner, at a Press Conference Call on Identity Theft Sweep, Washington, D.C., Feb. 7, 2013

I’m here today with Rich Weber, chief of the IRS Criminal Investigation division. We are here to give you the results of an aggressive enforcement effort we have undertaken against refund fraud caused by identity theft, which is one of the biggest challenges facing the IRS today. I also want to update you on what else is being done in our fight against refund fraud. In that fight, I can say we are doing much better on all fronts but we have much work yet to do.

Working with other federal and state agencies, we at the IRS continue to increase the pressure on identity thieves. I want to bring you up to date on the results from a massive nationwide sweep in recent weeks that targeted identity theft suspects in 32 states and Puerto Rico, involving a total of 215 cities and surrounding areas. This coast-to-coast effort was taken against 389 individuals leading to hundreds of enforcement actions in January. And it was done in virtually all instances in partnership with other federal, state or local authorities. I want to thank everybody for their efforts.

In particular, I want to express my appreciation to the Justice Department, including the Tax Division and the local U.S. Attorney’s offices, for the key role they played in this effort, which unfolded as we opened the 2013 tax season.

I’d also like to give you the bigger picture on how the IRS has been increasing its criminal enforcement efforts against identity theft over the last couple of years. We opened approximately 900 identity theft investigations in fiscal year 2012, which was triple the number we did in 2011. In the first four months of the current fiscal year, 2013, we have already opened more than 500 criminal investigations.

Total enforcement actions against identity thieves are also rapidly increasing. These include all milestones on the way to conviction, such as indictments, arrests and search warrants. In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects. After just four months in fiscal 2013, enforcement actions already total 1,703 against 907 suspects. And when these individuals go to jail, they’re spending an average of four years in custody. We’ve seen sentences as long as 262 months – that’s more than 20 years.

What this means is that we have increased dramatically the amount of time our special agents spend on this issue. In 2012, we spent more than a half million hours on it; this more than doubles what we did in 2011.  

These numbers show the IRS is very serious about pursuing identity thieves and protecting taxpayers.

We have taken these aggressive actions because we recognize how serious a problem identity theft is for taxpayers and for the tax system. With the tax filing season now underway, we want to be clear that there is a heavy price to pay for committing refund fraud and identity theft. For anybody who may be thinking about getting involved in a refund fraud scheme, our message is clear: The IRS and its law enforcement partners at the federal and state level  are going after the perpetrators of these crimes, and people are going to jail for a long time as a result.

In addition to the nationwide sweep, the IRS launched a special compliance effort in the same time period involving money service businesses. Many people call these check-cashing businesses. IRS auditors and investigators visited 197 businesses to help make sure that they are not assisting identity theft or refund fraud when they cash checks. These visits took place in 17 areas that we identified as high-risk, including Tampa, Miami, New York, Philadelphia, Chicago and Los Angeles. 

As important as this enforcement work is, it is only one of three parts of a comprehensive identity theft strategy that the IRS is pursuing to protect the American taxpayer. The first part of our strategy against refund and identity fraud begins with preventing the fraudster from receiving a refund.  The second part concerns how we treat victims whose refunds are caught up in the system and how fast we can get innocent people their refunds. Finally, as we have discussed there is enforcement. 

And I can say that we are getting so much better in all of these areas.  But we still have a bunch of work to do. I’ve spoken about enforcement, let me take a moment on preventing refunds from being paid to fraudsters.

The IRS has improved its efforts at blocking fraudulent refund claims before they are processed. We strive to screen out false returns at the earliest possible stage, and we are getting results. In fiscal 2012 we prevented the issuance of more than $20 billion in fraudulent refunds – up from $14 billion the year before. We stopped before any refund, 5 million suspicious returns this past year. And for the 2013 tax season, we are making dramatic improvements so that we can do an even better job of stopping identity thieves in their tracks. In addition, we have been issuing Identity Protection Personal Identification Numbers, or IP PINs as we call them, to taxpayers victimized by identity theft. The IP PIN is a unique identifier that shows that a particular taxpayer is the rightful filer of the return. This allows identity theft victims to avoid delays when they file future returns. In 2012 we issued 250,000 IP PINs, and for the 2013 filing season we have issued 770,000.

The IRS is also working hard to get better at helping victims of identity theft. We now have more than 3,000 employees working on identity theft-related cases – more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations. We have also improved our processes to speed these cases.  But I will tell you that we are still challenged by our inventory and folks are waiting longer than they should expect to. This will improve over the next year so that, we hope, an identity theft case should be resolved in far less time rather than today’s average. But we know that we need to do much, much more.

To taxpayers victimized by identity theft, I have a message. I want you to know that we understand your frustration, and we are working hard to get your cases resolved as quickly as we can. We know we have more work to do, and it’s my commitment that we will do everything we can to help victims resolve their cases.

But I also want the victims to know that we are committed to pursuing the identity thieves and protecting all taxpayers. The enforcement actions announced today reflect a much larger commitment by the IRS to pursue those engaging in this crime.

 

IRS Intensifies National Crackdown on Identity Theft; Part of Wider Effort to Protect Taxpayers, Prevent Refund Fraud

For a map of the Jan. 2013 identity theft enforcement actions visit IRS Tumblr

IR-2013-17, Feb. 7, 2013

WASHINGTON — Continuing a year-long enforcement push against refund fraud and identity theft, the Internal Revenue Service today announced the results of a massive national sweep in recent weeks targeting identity theft suspects in 32 states and Puerto Rico, which involved 215 cities and surrounding areas.

The coast-to-coast effort against 389 identity theft suspects led to 734 enforcement actions in January, including indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012.

The January crackdown, a joint effort with the Department of Justice and local U.S. Attorneys offices, unfolded as the IRS opened the 2013 tax season. IRS Criminal Investigation expanded its efforts during January, pushing the total number of identity theft investigations to more than 1,460 since the start of the federal 2012 fiscal year on Oct. 1, 2011.

“As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft,” said IRS Acting Commissioner Steven T. Miller. “We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area. This is part of a much wider effort underway for the 2013 tax season to stop fraud.”

The national effort with the Justice Department and other federal, state and local agencies is part of a larger, comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible.

The identity theft effort — which intensified in January as the 2013 filing season opened — involved 734 enforcement actions related to identity theft and refund fraud. The effort led to actions taking place throughout the country involving 389 individuals. The effort included 109 arrests, 189 indictments, informations and complaints, as well as 47 search warrants.

In addition to the criminal actions, IRS auditors and criminal investigators conducted a special compliance effort starting on Jan. 28 to visit 197 money service businesses to help make sure these businesses are not assisting identity theft or refund fraud when they cash checks.  The compliance visits occurred in 17 high-risk places identified by the IRS covering areas in and surrounding New York, Philadelphia, Atlanta, Tampa, Miami, Chicago, Houston, Phoenix, Los Angeles, San Diego, El Paso, Tucson, Birmingham, Detroit, San Francisco, Oakland and San Jose.

A map of the locations and additional details on the January enforcement actions and compliance visits are available on IRS.gov. The latest updates on the identity theft enforcement efforts and individual cases are available on a special Identity Theft Schemes page on IRS.gov. More information on enforcement actions can be found on a DOJ Tax Division page.

The identity theft push over the last several weeks reflects a wider effort underway at the IRS. Among the highlights:

·         The number of IRS criminal investigations into identity theft issues more than tripled in fiscal year 2012. The IRS started 276 investigations in fiscal year 2011, a number that jumped to 898 in fiscal year 2012. So far in fiscal year 2013, there have been more than 560 criminal identity theft investigations opened.

·         Total enforcement actions continue to rapidly increase against identity thieves. This category covers actions ranging from indictments and arrests to search warrants. In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects. After just four months in fiscal 2013, enforcement actions totaled 1,703 against 907 suspects.

·         Sentencings of convicted identity thieves continue to increase. There were 80 sentencings in fiscal year 2011, which increased to 223 in fiscal year 2012.

·         Jail time is increasing for identity thieves. The average sentence in fiscal year 2012 was four years or 48 months – a four-month increase from the average in fiscal year 2011. So far this fiscal year, sentences have ranged from 4 to 300 months.

More information on IRS Criminal Investigation efforts is available on IRS fact sheet FS-2013-4.

In addition to the national “sweeps” effort announced today, IRS work on identity theft and refund fraud continues to grow. For the 2013 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

To stop identity thieves up front, the IRS has made a significant increase for the 2013 tax season in the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The IRS has dozens of identity theft screens now in place to protect tax refunds.

These efforts helped the IRS in 2012 protect $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

By late 2012, the IRS assigned more than 3,000 IRS employees — over double from 2011 — to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.

“We are strengthening our processing systems to watch for identity theft and detect refund fraud before it occurs,” Miller said. “And we continue to put more resources on helping people who are victims of identity theft and resolve these complex cases as quickly as possible.”

Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.

To help taxpayers, the IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and a special guide to assistance. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.

Taxpayers looking for additional information can consult the special identity protection page on IRS.gov. A map of Enforcement Actions Taken in January 2013 can also be found on IRS.gov.

 

Additional Resources:

·         FS-2012-8, Taxpayer Guide to Identity Theft

·         FS-2013-2, IRS Combats Identity Theft and Refund Fraud on Many Fronts

·         FS-2013-3, Tips for Taxpayers, Victims about Identity Theft and Tax Returns

 

IRS Statement on Form 8863, Education Credits

Update April 25, 2013

The IRS worked quickly to process tax returns affected by a problem with a limited number of software company products involving some taxpayers filing Form 8863, Education Credits. As a result, the IRS was able to issue refunds to virtually all affected taxpayers by mid-April , with many receiving their refunds even sooner. There may be a small group of these returns that may have other issues that continue to be worked.

Taxpayers can check “Where’s My Refund?” on IRS.gov to determine the status of their refund. "Where's My Refund?" is usually updated overnight, so taxpayers only need to check the tool once a day.

Update March 26, 2013

Over the last two weeks the IRS has worked diligently to process tax returns affected by a problem with a limited number of software company products involving some taxpayers filing Form 8863, Education Credits. The IRS previously estimated that it could take 4-6 weeks from March 12 to issue refunds to the impacted taxpayers. Due to the special steps the IRS took to help these taxpayers,  the work is being completed more quickly than anticipated — in two to four weeks. Many affected taxpayers have already received their refunds and more are on their way. The IRS expects to issue nearly all of these refunds in early to mid-April .   

Taxpayers affected by this issue can check “Where’s My Refund?” on IRS.gov to determine the status of their refund. The IRS reminds taxpayers that "Where's My Refund?" is usually updated overnight, so taxpayers only need to check the tool once a day.

March 12, 2013

The IRS is aware of a problem with a limited number of software company products that affected some taxpayers filing Form 8863, Education Credits, between Feb. 14 and Feb. 22. The problem resulted in those tax returns requiring additional review by the IRS.

The IRS is continuing to review the situation and working with affected software companies to assist in the processing of these tax returns. Typically, the review process for a situation like this takes up to 8 weeks. We are taking special steps to help taxpayers. This means the IRS may need as much as 4-6 weeks from this date to issue a refund to the taxpayer. While the number of tax returns affected is around 10 percent of the total returns claiming the credit, the IRS continues working aggressively to address this situation and hopes to reduce those projected refund time frames further.

Taxpayers who filed a Form 8863 with their tax return during this time period can check “Where’s My Refund?” on IRS.gov to determine the status of their refund. If taxpayers have not received a refund date and filed during the affected period, they should contact their software provider to determine if they may be in the affected group.

The IRS reminds taxpayers that "Where's My Refund?" is usually updated overnight, so taxpayers don't need to check “Where's My Refund?” more than once a day.

 

Prepared Remarks of William J. Wilkins, IRS Chief Counsel, at the Tax Executives Institute, March 18, 2013

Thank you for the introduction.  Let me start by commending you for honoring Doug Shulman.  I think that Steve Miller and Beth Tucker would join me in saying that Doug had an extraordinarily positive influence on tax administration generally, on the IRS as an institution, and on those of us who had the privilege of working directly with him.

I’d like to share with you some of what we as IRS leadership are focusing on these days, with particular attention to the issues that you are involved in.

We are in the middle of filing season, which is always top of mind for us.  We faced some tough challenges in rolling out filing season after Congress passed a bill on January 1st containing a number of retroactive tax changes.  It wasn’t easy, but thanks to the hard work of many of our employees, we were able to allow most taxpayers to file their returns beginning January 30th.  Others had to wait, including those claiming depreciation deductions, and many business credits, but as of March 4, we were able to begin accepting all returns.

Budget issues are also receiving considerable attention.  The IRS budget for Fiscal Year 2012 was a significant reduction from the previous year, so the agency has been very focused on cost savings and efficiencies.  The Continuing Resolution passed last fall has kept the IRS at the 2012 budget level since the beginning of the 2013 Fiscal Year last October.  That CR runs out March 27, so we still face uncertainty as to the rest of the fiscal year.

Like nearly every other government agency, the IRS is also coping with the funding reduction imposed by sequestration.  The first steps have involved hiring freezes, reduced grant funding, and cutbacks in areas like travel and training.  But because our greatest expense by far is employee pay, it appears that a number of furlough days will be necessary.  But no furloughs will occur at IRS before summer, so there will be no furlough effect on the filing season.

With respect to our interactions with the large business community, much of our work is focused on issue management – that is, finding ways to resolve issues more efficiently and earlier in the process.

Part of that strategy is placing emphasis on selecting issues for audit that will have the broadest impact on compliance, regardless of entity type or size.  As a result, there will be less emphasis on the size and corporate structure of taxpayers in the designation of cases for review, and more emphasis on the nature and complexity of the issues presented.

This does not mean that we will stop auditing large taxpayers.  It does mean that we will conduct examinations with processes and designations that lead to the most efficient and effective use of our limited resources.  There are several initiatives currently in process that we hope will contribute to these efficiencies.

For example, LB&I expects to implement revised procedures around Information Document Requests, or IDRs, that will be designed to improve taxpayer collaboration on setting deadlines and to clarify measures to be taken in response to missed deadlines.

LB&I is also continuing its centralized review processes for the Schedule UTP.  Part of that effort is to identify areas where additional procedures, instruction, or guidance may be needed.  As an update, here are some of the data points from our two years of experience with the Schedule UTP:

·         The data as of December 2012 showed about the same number of UTP filers for tax year 2011 as for 2010: 1,783 for 2011 versus 1,761 for 2010.

·         83% of the 2011 filings came from IC taxpayers not subject to continuous audit.

·         4,120 tax positions have been disclosed for 2011.

·         47% of 2011 filers had only one position to disclose.

·         It appears that Sections 41, 482, and 162 will continue as the top Code sections.

And remember that we will have a new group of UTP filers for 2012.  It will be interesting to see what tax positions these taxpayers disclose.

Institutionally, I think the Schedule UTP has also helped to prevent a couple of scenarios that I was worried about a few years ago.  One problem scenario was where the IRS continued not to ask for any information that was developed for financial accounting, which would likely have led to mounting criticism from outsiders who assumed that the workpaper information was the key to the kingdom.  Another problem scenario was one where the IRS would be seeking boxes and boxes of workpaper information, including deliberative process information.  That would certainly have led to our getting pulled into work product doctrine cases all over the country and entangling us in a difficult set of policy arguments around tax advice and financial accounting.  By crafting the Schedule UTP and policy of restraint protocols, the IRS was able to find a workable way through both of those potential problems.

The Compliance Assurance Process, or CAP, is also evolving.  We started with 17 corporate taxpayers in the pilot program in 2005.  Today we have 169.  We also have 19 taxpayers in our “pre-CAP” phase to help them prepare for entry into CAP.

There is now a CAP maintenance program, designed for taxpayers who have been in CAP for several years, have fewer complex issues, and have established a track record of working cooperatively with us.  We have identified 49 taxpayers who qualify for CAP maintenance, and we will be sending letters soon inviting them into this phase of the program.  If all 49 accept the terms we offer, nearly 30% of the CAP population will be in the maintenance phase.

Another part of case resolution is the Appeals process, which is available when issues are not resolved during the examination process.  During my time as Chief Counsel, we have spent significant time articulating and communicating rules and expectations for providing legal advice to Appeals officers in a manner consistent with the principle of Appeals independence.  Appeals wants to have the best possible advice from our technical specialists and litigators, and we want to provide it.  There may be certain Counsel lawyers whose Appeals contacts are subject to ex parte restrictions due to their involvement in the examination phase, but there will always be qualified Counsel available to provide frank assessments of strengths and weaknesses to Appeals officers.  And it should be remembered that Appeals officers are free to follow or not follow advice and recommendations from Counsel.

Another development in Appeals is a project that took on the name of the Appeals Judicial Attitude and Culture Project.  One of the key issues addressed by that effort was the question of how to deal with instances where new facts or arguments are presented after a case gets to Appeals. 

Now, when Appeals receives new information, the case will go back to the LB&I examination function – except for the rare instance where the information was requested by Appeals.  Where Appeals does retain jurisdiction after receiving new information or arguments, LB&I will be given an opportunity to review and comment.  This policy reinforces the quasi-judicial role of Appeals by ensuring that Appeals employees are not doing the investigating.  That should be left to LB&I.

Another business tax enforcement area of focus involves flow-through entities.  In Fiscal Year 2011, 74% of LB&I returns were partnership and Subchapter S returns.  For LB&I and SBSE together, the percentage is 80%.  Those operating divisions are developing a strategy to address this significant inventory.  The strategy is focused on ways to assess risk and ways to identify the highest-risk returns; enhancing relevant expertise for Revenue Agents; and increasing collaboration across IRS business divisions on passthrough issues.

IRS focus on passthroughs has also led to a legislative proposal that was included in the administration’s budget proposals last year, and which we expect will again be proposed this year.  Under the proposal, partnerships of 1,000 or more partners would have their tax issues resolved at the partnership level, under rules that today apply to so-called electing large partnerships.  Specifically, an adjustment would be resolved by adjusting a large partnership’s current income, so that the tax effect would be seen by the current generation of partners and not the historic set of partners that existed during the year being examined.  In addition, the proposal removes the current early deadline for K-1 forms for electing large partnerships, which we hope will make elections for partnerships between 100 and 1,000 partners more attractive.  This would achieve significant simplification, especially for partnerships with owners that are themselves partnerships, often running up multiple tiers.

Another significant issue management initiative is in the area of transfer pricing.  You have seen that LB&I has a new position of Director for Transfer Pricing Operations, which oversees both the Transfer Pricing Practice and the Advanced Pricing and Mutual Agreement program.  Because the old APA program was previously a function within Chief Counsel, I have watched APMA with particular interest.  I have been pleased that the hoped-for benefits of putting the AP part together with the MA part appear to be coming true, through hard work, improved procedures, and application of more robust resources than in the past. 

Now I’m going to pivot a bit from an LB&I perspective to more of a Counsel perspective, to focus on some guidance priorities.  As I considered what to highlight here, one thing that stood out for me was the number and scope of big, multi-year projects that have occupied our attention.  Much of this kind of staged rollout activity was baked into statutes that we were charged with implementing – I am thinking here of merchant card reporting, basis reporting, FATCA, and the Affordable Care Act.  All of these initiatives rely heavily on information technology, both for the government and the private sector, and technology just doesn’t happen overnight.

Basis reporting for equities is now a familiar part of the tax reporting landscape.  We will soon expand basis reporting from equities to debt and options, under regulations that are nearing finalization.  And the IRS is starting to actually make use of merchant card reporting, in ways that recognize how different that information is from traditional third party reporting.  I’ll come back to FATCA and ACA in a moment, but first let me turn to a few other topics, starting with the Return Preparer Initiative, another big project with a multi-year, staged rollout.

That staged rollout has now stalled following the government’s District Court loss in the Loving case.  With assistance from the Justice Department, we are continuing to contest the notion that the program lacks statutory authority.  But one point deserves emphasis, which is that the requirement for a paid preparer to obtain a PTIN and to include it with all prepared returns is separately authorized in Section 6109, and is not being challenged in the Loving case.  The ability to associate returns with their preparers facilitates much of the activity that holds the greatest promise for improving the quality of millions of returns.  Some of that activity involves IRS contacts with preparers; that will continue this season and into the future.

Another significant and longstanding guidance project is the regulation dealing with capitalization and repair issues for buildings, equipment, and other tangible property.  That regulation is undergoing further changes, as foreshadowed by Notice 2012-73.  That Notice identified the de minimis rule, the safe harbor for routine maintenance, and the disposition rules as areas of likely change where stakeholder comment would be particularly helpful.  There was a good response and you should anticipate changes in each of those areas in regulations that we hope to publish by the middle of 2013.  We also recognize that there are special accounting method change issues arising from how this regulation has rolled out in phases, and I expect those will be addressed contemporaneously with the publication of the regulations.

On the FATCA front, we now have final regulations.  Perhaps as significantly, the intergovernmental agreement or IGA concept has moved dramatically into reality.  There is more to come, including more IGAs, more development of information exchange protocols, revised withholding and reporting forms, and FFI agreement language and processes.  But the broad timetables are set and we appear to be on a path to a new way of doing things when it comes to using global financial practices to prevent tax fraud.

The Affordable Care Act, of course, has its own timetables coming into greater focus as we move later and later into 2013.  I personally break down our guidance efforts here between items related to, first, health insurance coverage, particularly the exchanges; second, new tax regimes enacted in ACA; and third, new health policy regimes with a tax component, for example nonprofit hospital rules.  I pay the most attention to items that are related to health insurance, especially exchanges; and to items where stakeholders need guidance immediately.

We now have at least proposed guidance out on almost all of the building blocks for 2014, including on the premium tax credit, employer penalties, and individual penalties.  There are two critical information reporting regimes for employers and insurers that are receiving the highest priority as we speak.  Although this reporting will not actually occur until the first quarter of 2015, we recognize that system designers need to know as soon as possible the data they will need to capture during 2014.  Part of our effort now is to provide our expected data items in the upcoming proposed regulations as a list that we expect not to change as the 2015 reporting season approaches.  That means being careful that this list of items will do the job for 2015 filings.  These projects are in the final stages of review, and I hope you will be able to see them soon.

We also have some significant draft proposed regulations that are getting priority based on the effective dates of the relevant provisions, including a provision restricting compensation deductibility for health insurers, and statutory changes affecting nonprofit hospitals.  And finally, some of our most critical and complex proposed regulations will need to be finalized as the year goes on, including rules affecting individual and employer penalties; Section 6103 information safeguards for exchange related information flows; and the rules on the new net investment income and additional Medicare taxes.

Let me conclude with some comments on the potential for significant tax legislation, because I am often asked about possible IRS roles in Congressional consideration of tax reform.

The IRS traditionally consults with the Treasury Department on tax administration aspects of administration budget proposals, and it is not unusual for a Treasury budget proposal to have its origin in IRS suggestions.  We are also quick to respond to the tax writing committees and their staffs when they want to access IRS experience.  Treasury Tax Policy is the voice of the administration on possible legislative changes, but they value and freely access our input.

At the moment, both tax writing Committees have charged their staffs with the preparation of detailed background information and sometimes even policy drafts on tax reform subjects.  This is the kind of process that is most conducive to IRS being able to impart our concerns.  On the other hand, we have seen other kinds of tax processes, where bills happen quickly and are driven by high level negotiations, that make it difficult to include IRS input.

The thing that I would like to remind policymakers of is that stability in the tax law has its own value as a reform.  Many of our most serious tax administration challenges come from the rapid pace of change and from uncertainty regarding the fate of temporary provisions.  On this point, there is actually good news to report from the January 2013 ATRA legislation, because it changed several significant tax laws from temporary rules to permanent rules.  From a tax administration viewpoint, enacting permanent alternative minimum tax rules is an extremely significant change. 

Now I know that you can’t have tax reform without changing the law.  But you can have tax reform that reduces or even eliminates expiring provisions; and you can form a consensus among policymakers to have a high bar for enacting major changes in the years following reform.  Stability could be the best tax reform of all.

I’ll close on that thought.  Thank you again for inviting me.

 

Relief Available To Many Extension Requesters Claiming Tax Benefits

IR-2013-31, March 20, 2013

WASHINGTON —The Internal Revenue Service today provided late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching to their returns any of the forms that couldn’t be filed until after January.

The relief applies to the late-payment penalty, normally 0.5 percent per month, charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.

Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits qualify for this relief. A complete list of eligible forms can be found in Notice 2013-24, posted today on IRS.gov.

Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Eligible taxpayers need not make any special notation on their extension request, but as usual, they must properly estimate their expected tax liability and pay the estimated amount by the original due date of the return.

The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.

Further details on this relief, including instructions for responding to penalty notices, is available in Notice 2013-24.

 

IRS Releases the Dirty Dozen Tax Scams for 2013

IR-2013-33, March 26, 2013

WASHINGTON — The Internal Revenue Service today issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

"This tax season, the IRS has stepped up its efforts to protect taxpayers from a wide range of schemes, including moving aggressively to combat identity theft and refund fraud," said IRS Acting Commissioner Steven T. Miller. "The Dirty Dozen list shows that scams come in many forms during filing season. Don't let a scam artist steal from you or talk you into doing something you will regret later."

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

The following are the Dirty Dozen tax scams for 2013:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

Combating identity theft and refund fraud is a top priority for the IRS, and we are taking special steps to assist victims. For the 2013 tax season, the IRS has put in place a number of additional steps to prevent identity theft and detect refund fraud before it occurs. We have dramatically enhanced our systems, and we are committed to continuing to improve our prevention, detection and assistance efforts.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. We are continually reviewing our processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

The IRS continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS prevented the issuance of $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. The Criminal Investigation unit has devoted more than 500,000 staff-hours to fighting this issue.

We know identity theft is a frustrating and complex process for victims. The IRS has 3,000 people working on identity theft related cases — more than double the number in late 2011. And we have trained 35,000 employees who work with taxpayers to help with identity theft situations.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has created a new web page to assist taxpayers. For tips about choosing a preparer, red flags, details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 38,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $5.5 billion so far from people who participated in offshore voluntary disclosure programs since 2009.

“Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes promise refunds to people who have little or no income and normally don’t have a tax filing requirement – and are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly and members of church congregations with bogus promises of free money. They build false hopes and charge people good money for bad advice including encouraging taxpayers to make fictitious claims for refunds or rebates based on false statements of entitlement to tax credits. For example, some promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college. Con artists also falsely claim that refunds are available even if the victim went to school decades ago. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are also a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. As in the case of a recent disaster, Hurricane Sandy, the IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

·         To help disaster victims, donate to recognized charities.

·         Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

·         Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits  a contribution from you. Scam artists may use this information to steal your identity and money.

·         Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims

In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

 

IRS Expands Law Enforcement Assistance Program on Identity Theft to 50 States; Victim Assistance and Criminal Investigations Grow

IR-2013-34, March 28, 2013

WASHINGTON — The Internal Revenue Service today announced a nationwide expansion of the program designed to help law enforcement obtain tax return data vital to their local efforts in investigating and prosecuting specific cases of identity theft.

More than 1,560 waiver requests have been received since the Law Enforcement Assistance Program’s inception from over 100 state and local law enforcement agencies in the nine states participating in the pilot. The expansion covers all 50 states as well as the District of Columbia and will be effective Friday, March 29, 2013.

“The results of the pilot illustrate that this works as an innovative tool for law enforcement to help pursue tough identity theft situations,” said IRS Acting Commissioner Steven T. Miller. “This program is an effective way for law enforcement to work with the IRS to pursue identity thieves and protect taxpayers. Expanding the program and making it permanent on a nationwide basis makes sense for victims as well as law enforcement and tax administration.”

The IRS also announced today continued progress on several areas involving identity theft, including resolution of more victim cases and continued emphasis on criminal investigations.

Since the start of 2013, the IRS has worked with victims to resolve and close more than 200,000 cases. This is in addition to the expanded Identity Protection PIN (IP PIN) pilot, an initiative to protect victims with previously confirmed cases of identity theft by creating an additional layer of security on these accounts.

The IRS has issued more than 770,000 IP PINs to identity theft victims at the start of this tax filing season.

Since October, there have been more than 670 criminal identity theft investigations opened. The criminals being sentenced are spending an average of four years in custody with sentences as long as 20 years.

“The IRS continues to aggressively work identity theft issues on multiple fronts, focusing on helping victims of this terrible crime and pursuing the perpetrators across the nation,” Miller said. “The pilot expansion will help these efforts.”

After an initial, successful pilot that started in Florida last April, the IRS expanded the program to eight additional states in October 2012. Together, the nine states represented a large percentage of the overall identity theft refund fraud seen by the IRS. In addition to the initial state of Florida, the pilot program expanded to include Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas.

Like the pilot program, state and local law enforcement officials with evidence of identity theft involving fraudulently filed federal tax returns will receive permission from the identity theft victim by having them complete a special IRS disclosure form so the IRS can provide law enforcement with the fraudulently filed tax return. Law enforcement officials will need to contact the identity theft victims to request and secure the victims' consent for disclosure of the records. As previously, the IRS will assist law enforcement in locating taxpayers and soliciting their consent.

Law enforcement representatives can then submit a disclosure authorization form, which the IRS created solely for use by victims of identity theft for this program, to the Criminal Investigation Division of the IRS, along with a copy of the police report and the 
IRS Identity Theft Affidavit if available. It is important that identity theft victims still submit the original copy of the IRS Identity Theft Affidavit to the IRS according to the instructions on the back of the form that fit their specific circumstances.

Federal law imposes restrictions on sharing of taxpayer information, including information that can be shared with state and local law enforcement. This IRS program allows taxpayers the option to permit information to be shared with state and local law enforcement specifically to assist law enforcement officials with their efforts in pursuing identity thieves. The IRS will process the disclosure forms received and forward the documentation to the law enforcement officer who requested the documents. The documents will not be sent directly to the taxpayer. However, the IRS will continue to work directly with taxpayers to resolve their tax accounts as quickly as possible.

Law enforcement interested in working with the IRS should contact their local IRS Criminal Investigation field office. 

This January, the IRS also conducted a coordinated and highly successful identity theft enforcement sweep. The coast-to-coast effort against identity theft suspects led to 734 enforcement actions in January, including 298 indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012. 

“The IRS and its law enforcement partners at the federal, state and local level are going after the perpetrators of these crimes, and people are going to jail for a long time as a result,” Miller said.

The IRS has a comprehensive and aggressive identity theft strategy employing a three-pronged effort focusing on fraud prevention, early detection and victim assistance. The agency is continually reviewing processes and policies to ensure that we are doing everything possible to minimize identity theft incidents, to help those victimized by it and to investigate those who are committing the crimes.

In fiscal 2012, the IRS prevented the issuance of more than $20 billion in fraudulent refunds  up from $14 billion the year before. IRS efforts stopped 5 million suspicious returns in 2012  up from 3 million suspicious returns stopped in 2011.

Taxpayers looking for additional information can consult the Taxpayer Guide to Identity Theft or theIRS Identity Theft Protection page on the IRS website.

 

IRS Smartphone App IRS2Go Now Available in Spanish

IRS YouTube Video: IRS2Go 

IR-2013-36, April 2, 2013

WASHINGTON — The Internal Revenue Service announced today the release of IRS2Go 3.0, an update to its smartphone application that offers practical tax tools and information for the first time in either Spanish or English.

The free mobile app offers taxpayers a number of safe and secure ways to access popular tools and the most up-to-date tax information. For the new version, IRS2Go is available for the first time in Spanish. The taxpayers’ phone language settings determine whether the IRS2Go content appears in English or in Spanish.

The resources available through IRS2Go include:

·         Get Your Refund Status. Taxpayers can check the status of their federal refund through the mobile app with a few basic pieces of information. An updated refund status is available 24 hours after the IRS acknowledges receipt of an e-filed return, or four weeks after mailing a paper return.

·         Get My Tax Record. Taxpayers can now order their tax account or tax return transcript from a mobile device. The transcript will be delivered via U.S. Postal Service to their address of record.

·         Watch Us. People can view the IRS YouTube videos right on their smartphones. The IRS YouTube video channels provide short, informative videos in EnglishSpanish and in American Sign Language on a variety of tax topics.

·         Follow the IRS. Taxpayers can sign up to follow the IRS Twitter newsfeeds, @IRSnews or@IRSenEspanol, which provide easy-to-use information, including tax law changes and important IRS programs

·         Get Tax Updates. Phone app users enter their e-mail address to automatically get simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the filing season and periodically throughout the rest of the year.

·         Get the latest news. With this tool users can quickly access the most recent updates on the IRS.gov English and Spanish news pages. 

Apple users can update or download the free IRS2Go application by visiting the Apple App Store. Android users can visit Google Play to download the free IRS2Go app.

For more information on IRS2Go, products and services through social media channels and other media products, visit www.IRS.gov.

 

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IRS Seeks Applications for Information Reporting Advisory Council

IR-2013-37, April 2, 2013

WASHINGTON — The Internal Revenue Service is requesting nominations for membership to the Information Reporting Program Advisory Committee (IRPAC), a federal advisory panel that advises the IRS on various tax administration issues.

The IRPAC presents an annual report to the IRS Commissioner at a public meeting in the fall. The 2014 IRPAC committee will consist of 21 volunteers. Members are appointed to three-year terms by the Commissioner, but terms are staggered so that approximately one-third of the panel changes each year. Nominations are currently being accepted for up to eight appointments to terms that will begin in January 2014.

The deadline for submitting applications is May 31, 2013.

IRPAC members are drawn from diverse backgrounds. Members represent the taxpaying public, tax professional community, small and large businesses, colleges and universities, state tax administrations, banks, insurance companies, foreign financial institutions, and the software and payroll industries.

Anyone interested in becoming a member of IRPAC may self-nominate or be nominated by a professional organization. All nominees must complete an application.

More information is available on IRS.gov at http://www.irs.gov/Tax-Professionals. Questions about the nomination process may be sent to publicliaison@irs.gov.

 

IRS Achieves $1 Billion in Cost Savings and Efficiencies

FS-2013-05, April 2013

Since Fiscal Year 2010, the IRS has made a concerted effort to identify and put in place ways of saving taxpayer dollars and working more efficiently. This effort intensified in FY 2011 when the agency’s budget outlook became more challenging. As a result, the IRS estimates it will have achieved $1 billion in budget savings and efficiencies between FY 2010 and the end of FY 2013. These savings and efficiencies have been achieved across the IRS in numerous areas, including personnel, travel, training, office space and contracts.

At the same time, the IRS continues to invest in strategic priorities that allow it to fulfill its dual mission of tax law enforcement and taxpayer service. As the budget environment has become more difficult and the IRS has stepped up its cost-saving activities, it has also maintained strong taxpayer service performance results and continued a balanced and effective enforcement program. In particular, the IRS has increased its efforts against refund fraud, especially fraud caused by identity theft.

The IRS consistently achieves a high return on investment for its activities while running a fiscally disciplined operation. Going forward, the IRS remains committed to being as efficient as possible and spending taxpayer dollars wisely.

However, the continued reductions in the IRS budget will begin to have an adverse impact on service and enforcement efforts in the near future. This will affect the service we provide to taxpayers and the amount of money we collect through enforcement activities.

Budget Challenges

Since FY 2010, the IRS has received reductions to appropriated funding totaling almost $1 billion. This includes a reduction of almost $600 million as a result of sequestration in the current FY 2013. As the IRS has been absorbing these reductions, the agency has taken on new legislatively mandated responsibilities, including Merchant Card Reporting, the Foreign Account Tax Compliance Act (FATCA) and tax-related provisions of the Affordable Care Act (ACA).

The IRS has responded to budget reductions and the increased workload by putting in place new guidance and controls beginning more than two years ago to create additional efficiencies in routine operations in order to ensure minimal impact to the delivery of our core mission.

As a result, IRS actions taken in the last two years have led to almost $1 billion in savings. Net savings of more than $350 million have been used to offset the reductions to IRS appropriations without any adverse actions on employees. The remaining savings have been reinvested into other operational priorities to ensure that the IRS continues to deliver our core mission while handling emerging priorities, such as the increase in refund fraud related to identity theft.

IRS Cost-Saving Actions

Specific actions that the IRS has taken to achieve greater cost savings and efficiencies fall into several major areas. Some examples of the ways that the IRS is achieving cost savings include the following:

Personnel

·         In FY 2011, a hiring policy started that allowed only exception hiring by the Deputy Commissioners.

·         Buyouts were offered in FY 2012 to 7,000 employees, with 1,244 employees accepting the offers.

Travel and training

·         The IRS limited employee travel and training to mission-critical projects beginning in FY 2011. Training travel alone has been reduced by $83 million in the last two fiscal years.

·         The IRS has expanded the use of alternative delivery methods for in-person meetings, training, conferences and operational travel. A key component of these cost-saving efforts has been the use of video for training purposes. The IRS estimates that through the end of FY 2013, the training costs will have been reduced by about 83 percent and training travel costs by 87 percent.

Video savings

·         Using video for training purposes helps the IRS save millions of dollars and is an important part of successful IRS cost-efficiency efforts.

·         Employee training through video covers a wide set of key issues, ranging from educating compliance personnel about tax law changes to ensuring that employees respect taxpayer rights.

Space optimization

·         In May 2012, the IRS announced a sweeping office space and rent reduction initiative that over two years is projected to close 43 smaller offices and reduce space in many larger facilities. When complete, the initiative will slash IRS office space by more than 1 million square feet.

·         The IRS continues to find innovative ways to do more with existing space, such as developing new workspace standards to decrease individual office size.

·         The IRS has offered its employees increased telework opportunities, including the development of a plan for Home as Post of Duty.

Printing and postage

·         In FY 2011, the IRS eliminated the practice of mailing tax form packages to taxpayers at the beginning of the filing season. Taxpayers are directed to IRS.gov for the tax forms they need.

·         All non-campus employees were converted to paperless Earnings and Leave statements.

Maintaining Taxpayer Service and Enforcement Efforts

Despite the reductions in staffing and operating expenses that have resulted from increased efficiencies, the IRS through FY 2012 continued to meet or exceed almost all FY 2010 performance results.

For example, in FY 2012, the percentage of individual tax returns processed electronically rose to 80.5 percent in FY 2012, from 69.3 percent in 2010.

The IRS has also maintained a balanced and effective enforcement program despite many challenges, collecting more than $50 billion in enforcement revenue in FY 2012, the third year in a row.

The FY 2012 enforcement results reflect changes in agency staffing and budget resources. After a nearly flat budget in FY 2011, the IRS budget was reduced by $305 million in FY 2012. As a result:

·         Overall full-time staffing at the IRS has declined by more than 8% over the last two years – about 8,000 positions.

·         Staffing for key enforcement occupations fell by 5,000 during the last two years. In the past year, enforcement positions declined by more than 1,300 jobs ― nearly 6%.

Identity Theft Efforts

The IRS continues to confront the challenge of refund fraud caused by identity theft. The IRS more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area. In Calendar Year 2013 alone, the IRS has resolved more than 200,000 taxpayer identity theft cases. Despite budget limitations, the IRS has dedicated $328 million annually on identity theft efforts. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011. The IRS stopped 5 million suspicious returns in 2012 ― up from 3 million suspicious returns stopped in 2011. 

 

Low Income Taxpayer Clinic Program Reports on Activities

IR-2013-39, April 8, 2013

WASHINGTON — The IRS’s Low Income Taxpayer Clinic (LITC) Program Office has issued its firstreport showing how LITCs provide pro bono legal services to help thousands of low income taxpayers nationwide resolve disputes with the IRS and learn about their taxpayer rights and responsibilities.

“Although the LITC Program has been operating and helping taxpayers since 1999, this is the first time we have compiled a report describing the program’s activities and accomplishments. We are proud to provide this synopsis and to demonstrate how the pro bono representation, education, and advocacy efforts of clinics assist low income taxpayers,” said Nina E. Olson, National Taxpayer Advocate.

“During the first half of 2012, LITCs helped taxpayers secure more than $3.2 million in tax refunds and to eliminate nearly $16.5 million in tax liabilities, penalties and interest,” said William P. Nelson, LITC Program Director.

The LITCs provide free or low-cost assistance to low income taxpayers who have a tax controversy with the IRS, such as an audit or collection matter, and conduct outreach and education to taxpayers who speak English as a second language (ESL). The report provides an overview and history of the LITC Program, discusses the type of work the LITCs perform, and explains how their work helps ensure the fairness and integrity of the tax system. 

Although LITCs receive partial funding from the IRS, LITCs, their employees, and their volunteers operate independently from the IRS. The grant program is administered by the Office of the Taxpayer Advocate at the IRS, led by the National Taxpayer Advocate. The program awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain a low income taxpayer clinic. Examples of qualifying organizations include:

·         Clinical programs at accredited law, business, or accounting schools whose students represent low income taxpayers in tax disputes with the IRS.

·         Organizations exempt from tax under Internal Revenue Code Section 501(a) that represent low income taxpayers in tax disputes with the IRS or refer those taxpayers to qualified representatives, or that provide education and outreach for ESL taxpayers.

 

Tips on Reporting Natural Resource Income

FS-2013-6, April 2013

Taxpayers who own land that contains valuable natural resources should be aware that arranging for the development of the resources by means of a lease creates tax consequences.

Landowners may make complex financial agreements to receive royalty, bonus or other income in exchange for access to the resources on their land, such as natural gas and oil from shale deposits. Here are some important facts from the Internal Revenue Service about these transactions.

Lease Agreements

Natural resource extraction agreements involve payments for extracting resources such as oil and gas. Payments can include delay rental, royalty and lease bonus payments.

Taxpayers who receive these payments are royalty owners who do not have a working interest in extraction operations. Taxpayers should normally report these payments as income on Part I ofSchedule E (Form 1040), Supplemental Income and Loss. Income reported on Schedule E is usually not subject to self-employment tax.

Taxpayers who do have a working interest in the extraction operations are subject to self-employment tax, and must file Schedule C (Form 1040), Profit or Loss from Business.

Leases and Lease Bonuses

Taxpayers/lessors typically receive a lease bonus from a lessee — the party that extracts the natural resource — in consideration for granting the lease. A lease bonus may be paid in a lump-sum or multi-year payments. The lessee should provide the taxpayer with a Form 1099-MISC, Miscellaneous Income, listing the amount of bonus payments as “Rents” in Box 1. Taxpayers usually report their lease bonus income as rent on Schedule E.

Royalty Payments

Taxpayers/lessors may receive periodic payments for their share of the natural resource. These payments are commonly known as royalty payments. They must be based on natural resource production on a recurring or intermittent basis, per the terms of the lease.

The lessee should provide the taxpayer with a Form 1099-MISC reporting the payments as “Royalties” in Box 2. Most taxpayers report royalty payments received as royalty income on Schedule E.

Depletion Deduction

Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. The depletion deduction allows a taxpayer who owns an economic interest in a mineral deposit or standing timber to reduce their taxable income and account for the reduction of reserves.

There are two ways of figuring the depletion deduction: cost depletion and percentage depletion. A taxpayer who owns an interest in a mineral deposit must use the method that yields the greater deduction. The percentage depletion rate for federal tax purposes varies depending on the mineral being produced.

A taxpayer must be an independent producer or royalty owner to use percentage depletion for oil and gas. A taxpayer who owns an interest in standing timber can only use cost depletion.

Taxpayers claim depletion and other allowable deductions in the “Expenses” section in Part I of Schedule E. See IRS Publication 535, Business Expenses, for more information.

Additional Expenses

Taxpayers who own working interests may be able to deduct expenses to reduce their natural resource income. This applies to taxpayers who have working interests in extraction operations. Expenses may include overhead, dry holes, certain legal and administrative fees and county health department water testing fees. Severance tax and operation expenses should be detailed on an Authorization for Expenditures (AFE) statement provided by the exploration company.

Only taxpayers who have a working interest in the extraction operations may deduct business expenses such as depreciation, tangible or intangible costs, utilities, car and truck and travel from their natural resource extraction income.

Free Natural Gas

Taxpayers may receive natural gas from a lessee oil and gas company. The receipt of gas may be taxable income if the gas is not from the taxpayer/lessor’s retained ownership interest. In general, the ownership of raw gas extracted by a lessee is based on the lease terms and state law.

Reporting Rental and Royalty Income

Rental and royalty income or loss is calculated on Schedule E. That amount is then transferred to Line 17 on Form 1040 to be combined with income received from other sources such as wages, dividends and interest to determine total income. Net income from royalty and lease payments is not considered passive income.

Estimated Tax

Since federal income tax is not typically withheld from these payments, taxpayers may want to consider making estimated tax payments on their natural resource income. See Publication 505, Tax Withholding and Estimated Tax, for more information.

Income from leasing mineral property and royalty payments for the extraction of natural resources can be significant. Taxpayers who receive this type of income should familiarize themselves with the tax rules to avoid an unexpected bill at tax time. More information is available in Publication 525, Taxable and Nontaxable Income, and the Instructions for Form 1040, Schedule E and Form 1040, Schedule C.

 

Certified Public Accountant Disbarred for Multiple Circular 230 Violations

IR-2013-41, April 12, 2013

WASHINGTON — The Internal Revenue Service today announced that its Office of Professional Responsibility (OPR) obtained the disbarment of Certified Public Accountant Anthony A. Tiongson for charging unconscionable fees, giving irresponsible advice to clients and making false statements to federal and state authorities, among other things.

Tiongson is prohibited from preparing tax returns or representing taxpayers before the Internal Revenue Service for a minimum of five years. Tiongson practiced in California.

“Practitioners who abuse the trust of their clients by charging unconscionable fees for taking frivolous positions on their tax returns can expect to hear from my office in the IRS," said Karen L. Hawkins, director of OPR

In a Final Agency Decision, the Administrative Law Judge (ALJ) disbarred Tiongson on March 1. The ALJ found that Tiongson’s advice to clients to use Form 2555 to treat California earned income as foreign source income on at least fifty-two tax returns, constituted disreputable conduct under Circular 230, and his failure to research the legitimacy of the filing position specifically violated the Circular’s due diligence standards.

The ALJ also found Circular 230 violations in Tiongson’s use of a contingent fee structure and in the false statement to IRS Criminal Investigation regarding his fee structure. He was also found to have made false claims to the California Board of Accountancy that he ceased advising use of Form 2555 after becoming aware of the first IRS examination of his clients’ returns.

The ALJ also found that Tiongson violated Circular 230 by engaging in a pattern of delaying IRS examination and collection actions by repeatedly raising numerous frivolous arguments, long-rejected by the IRS and by case law. Tiongson’s litigation threats against IRS employees, as part of client settlement proposals, were also determined to be violations.

"The mere possession of a professional license does not give a practitioner the right to make his or her own rules, or to threaten IRS personnel doing their jobs,” Hawkins said.

The ALJ found other violations of Circular 230 including: Tiongson did not respond to OPR requests for information and he submitted a Form 2848, Power of Attorney, naming an unlicensed individual as a second “authorized” representative in a collection matter thereby aiding an ineligible person to practice before the IRS.

Although the Decision was entered as a default judgment, Tiongson was represented by counsel during the proceedings. The text of the ALJ Decision can be found on IRS.gov.

 

Penalty Relief Available to Some Storm Victims Unable To File On Time

IR-2013-42, April 15, 2013

WASHINGTON — The Internal Revenue Service announced today that it will provide penalty relief to anyone unable to file on time due to severe storms in parts of the South and Midwest over the past few days.

Power outages and transportation problems are, in some cases, making it very difficult or impossible for some taxpayers and tax professionals to meet the regular April 15 filing deadline. As a result, taxpayers directly impacted by these storms will qualify for penalty relief, based on reasonable cause, if, due to these storms, they are unable to file their returns or pay tax due until after tonight’s midnight deadline. This relief applies to the late-filing penalty, normally 5 percent per month, and the late-payment penalty, normally 0.5 percent per month, provided taxpayers file the return or pay the tax within a reasonable time after the power outages and transportation problems have been resolved.

Affected taxpayers may receive penalty notices from the IRS. If so, the IRS will abate these penalties if they request reasonable cause relief, based on the April storms. By law, the IRS cannot abate interest.

 

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IRS Announces Three-Month Filing, Payment Extension Following Boston Marathon Explosions

IR-2013-43, April 16, 2013

WASHINGTON — The Internal Revenue Service today announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s explosions.

This relief applies to all individual taxpayers who live in Suffolk County, Mass., including the city of Boston. It also includes victims, their families, first responders, others impacted by this tragedy who live outside Suffolk County and taxpayers whose tax preparers were adversely affected.

“Our hearts go out to the people affected by this tragic event,” said IRS Acting Commissioner Steven T. Miller. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

Under the relief announced today, the IRS will issue a notice giving eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. No filing and payment penalties will be due as long as returns are filed and payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

The IRS will automatically provide this extension to anyone living in Suffolk County. If you live in Suffolk County, no further action is necessary by taxpayers to obtain this relief. However, eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 starting Tuesday, April 23, and identifying themselves to the IRS before filing a return or making a payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

Eligible taxpayers who need more time to file their returns may receive an additional extension to Oct. 15, 2013, by filing Form 4868 by July 15, 2013.

Taxpayers with questions unrelated to the Boston tragedy should visit IRS.gov, or contact the regular IRS toll-free number at 1-800-829-1040.

 

IRS Statement on Obtaining eMails

Where the IRS already has an active criminal investigation and seeks to obtain the content of emails from an Internet Service Provider, we obtain a court ordered search warrant. It is not the IRS policy to seek the content of emails from ISPs in civil cases. Respecting taxpayer rights and taxpayer privacy are cornerstone principles for the IRS. Our job is to administer the nation's tax laws, and we do so in a way that follows the law and treats taxpayers with respect. However, to resolve any remaining confusion surrounding this issue, the IRS is reviewing its policy and guidance and will make appropriate updates.

 

IRS Releases Final Report on Tax-Exempt Colleges and Universities Compliance Project

IR-2013-44, April 25, 2013

WASHINGTON — The Internal Revenue Service today released its final report summarizing audit results from the IRS’ colleges and universities study, which began in 2008. This final report describes the agency’s multi-year project on a major segment of tax-exempt organizations.   

“The audits identified some significant compliance issues at the colleges and universities examined,” said Lois Lerner, Director, Exempt Organizations division. “Because these issues may well be present elsewhere across the tax-exempt sector, all exempt organizations need to be aware of the importance of accurately reporting unrelated business income and providing appropriate executive compensation.”

The attached final report focuses on two primary areas within the examinations: reporting of unrelated business taxable income, and compensation, including, employment tax and retirement plan issues.

The interim report issued in 2010 focused on results from the questionnaires submitted by tax-exempt colleges and universities.

IRS Seeks Applications for the Internal Revenue Service Advisory Council

IR-2013-45, May 1, 2013

WASHINGTON — The Internal Revenue Service announced it is accepting applications for the Internal Revenue Service Advisory Council (IRSAC). Applications will be accepted through June 14, 2013.

IRSAC’s purpose is to provide an organized public forum for IRS officials and representatives of the public to discuss relevant federal tax administration issues. IRSAC members submit a report to the IRS Commissioner annually at a public meeting in the fall.

IRSAC is comprised of up to 35 members, who are appointed to three-year terms by the Commissioner. Applications are currently being accepted for approximately 11 appointments that will begin in January 2014.

Nominations of qualified individuals may come from individuals or organizations. IRSAC members are drawn from substantially diverse backgrounds. Membership is balanced to include representation from the tax professional community, including but not limited to: tax attorneys, certified public accountants, enrolled agents, appraisers and the business community.

Federally registered lobbyists cannot be members of IRSAC.

Nominations should describe and document the proposed member’s qualification for IRSAC membership, including the applicant’s knowledge of Circular 230 regulations and the applicant’s past or current affiliations, as well as dealings with the particular tax segment or segments of the community that the applicant wishes to represent on the council.

More information, including application forms, are available on the Tax Professionals page on IRS.gov. Questions about the application process can be sent to the following e-mail address:publicliaison@irs.gov.

 

IRS Seeking Applications for Volunteer Tax Assistance Program Grants

IR-2013-46, May 06, 2013

WASHINGTON — The Internal Revenue Service is accepting applications for the Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) grant programs, which will allow some organizations to apply for annual funding for up to three years.

Applications will be accepted only through Grants.gov until May 31, 2013. Previous grant recipients will have the option to apply for up to three years of annual funding which would reduce the amount of paperwork they must complete over the three-year period. This annual funding will also help recipients with budget planning.

Application packages for TCE and VITA are available on Grants.gov. Interested organizations may obtain an electronic copy of the grant application package instructions, Publication 1101 for TCE andPublication 4671 for VITA on the IRS.gov website. 

The TCE program was established in 1978 to provide tax counseling and return preparation to persons age 60 or older and to give training and technical assistance to the volunteers who provide free federal income tax assistance to seniors across the nation. 

The VITA Grant program was established in 2007 to supplement the VITA program, which was created in 1969. VITA provides underserved communities with free federal income tax filing assistance. The grant program enables VITA to extend services to underserved populations in hard-to-reach urban and non-urban areas, to increase taxpayers’ ability to file returns electronically, to enhance training of volunteers and to improve the accuracy rate of returns prepared at VITA sites.

 

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Grant, Kay Named to IRS Leadership Posts

IR-2013-47, May 8, 2013

WASHINGTON — The Internal Revenue Service today announced the selection of Joseph H. Grant as commissioner of the Tax Exempt and Government Entities Division and Sheldon Kay as Chief of Appeals.

“Joseph and Shelly are strong leaders who will provide strong leadership and continuity in these critical parts of the IRS,” said Steven T. Miller, Acting IRS Commissioner.

Grant has served as the TE/GE Deputy Director since 2007. As TE/GE Commissioner, Grant will oversee the administration of tax law relating to employee plans, tax-exempt organizations and various government entities. TE/GE serves approximately 3 million organizations.

Grant originally joined the IRS in August 2005 as director of the Employee Plans Rulings & Agreements division. Before that, he was Chief Operating Officer and a Deputy Executive Director of the Pension Benefit Guaranty Corporation (PBGC). Grant also served on the staff of the Oversight and Social Security subcommittees of the House Ways and Means Committee.

In Appeals, Kay will serve as the Chief after serving as the Deputy Chief of Appeals since his return to the IRS in May 2011.

Kay was formerly a member of the Sutherland’s Tax Practice Group, focusing on tax controversy issues, including IRS procedures, dispute resolutions and tax litigation matters. He also served as the IRS District Counsel for the Georgia District where he was the primary legal representative for the District Director, the Director of the Atlanta Service Center, and the Chiefs of Appeals, Collection, Criminal Investigation and Examination Divisions.

The mission of the IRS Appeals organization is to resolve tax controversies, without litigation, on a basis which is fair and impartial to both the government and the taxpayer. Appeals handles and resolves more than 100,000 taxpayer cases a year.

 

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IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion

IR-2013-48, May 9, 2013

WASHINGTON — The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands. The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.

The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.

It is expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken. Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution.

 

Many Tax-Exempt Organizations Must File with IRS By May 15 to Preserve Tax-Exempt Status

IR-2013-49, May 10, 2013

WASHINGTON — A key deadline of May 15 is facing many tax-exempt organizations that are required by law to file annual reports with the Internal Revenue Service. Organizations will see their federal tax exemptions automatically revoked if they have not filed reports for three consecutive years.

The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series informational returns or notices with the IRS. Under this law, organizations that fail to file reports for three consecutive years automatically lose their federal tax-exempt status. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement on small organizations. Churches and church-related organizations are not required to file annual reports.

Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s fiscal year ends. Organizations that need additional time to file may obtain anextension.

Many organizations use the calendar year as their fiscal year, which makes May 15 the deadline for them. Organizations that fail to file annual reports for three consecutive years will see their tax exemptions automatically revoked as of the due date of the third required filing.

Small tax-exempt organizations with average annual receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual receipts above $50,000 must file aForm 990 or 990-EZ, depending on their receipts and assets. Private foundations file a Form 990-PF.

The IRS began to publish the names of organizations identified as having automatically lost their tax-exempt status for failing to file annual reports for three consecutive years. Organizations that have had their exemptions automatically revoked and wish to have that status reinstated must file an application for exemption and pay the appropriate user fee.

The IRS offers an online search tool, Exempt Organizations Select Check, to help users more easily find key information about the federal tax status and filings of certain tax-exempt organizations, including whether organizations have had their federal tax exemptions automatically revoked.

 

IRS Criminal Investigation Issues Fiscal 2012 Report

IR-2013-50, May 10, 2013

WASHINGTON — IRS Criminal Investigation (CI) today released its Annual Report for fiscal 2012, highlighting strong gains in enforcement actions and penalties imposed on convicted tax criminals.

The 28-page report summarizes a wide variety of IRS CI activity on a range of tax related issues during the year ending Sept. 30, 2012. CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.

"The key to our successes is perseverance and dedication to working complex financial investigations aimed at stopping tax fraud, identity theft, offshore tax evasion, public corruption, money laundering and other financial crimes," said Richard Weber, Chief of Criminal Investigation.

Highlights of the report include:

Investigations initiated and prosecution recommendations were both up nearly 9 percent in fiscal 2012 compared to the prior year. Filings of indictments and other charging documents rose 13 percent. Meanwhile, convictions and those sentenced both gained roughly 12 percent from the prior year.

Criminal investigation initiations totaled 5,125 cases in fiscal 2012 while investigations completed were 4,937 – up 5 percent from fiscal 2011. Convictions totaled 2,634 in fiscal 2012 while the conviction rate edged up slightly to 93 percent.

"This annual report showcases some of the many significant cases that were completed by CI during fiscal year 2012 and the many program areas we cover as an organization. These cases are just a few examples of the thousands of investigations initiated by CI last year, as we continue to make our mark as the finest financial investigators in the world,” Weber said.  

 

IRS To Be Closed May 24, Four Other Days Due to Budget and Sequester; Filing and Payment Deadlines Unchanged

IR-2013-51, May 15, 2013

WASHINGTON — The Internal Revenue Service announced today additional details about the closures planned for May 24, June 14, July 5, July 22 and Aug. 30, 2013.

Due to the current budget situation, including the sequester, all IRS operations will be closed on those days. This means that all IRS offices, including all toll-free hotlines, the Taxpayer Advocate Service and the agency’s nearly 400 taxpayer assistance centers nationwide, will be closed on those days. IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place.

The IRS noted that taxpayers should continue to file their returns and pay any taxes due as usual.

Taxpayers needing to contact the IRS about their returns or payments should be sure to take these furlough dates into account. In some instances, this may include taxpayers with returns or payments due soon after a furlough day, such as the June 17 deadline for taxpayers abroad and those making a second-quarter estimated tax payment as well as the Sept. 3 deadline for truckers filing a highway use tax return.

Because none of the furlough days are considered federal holidays, the shutdown will have no impact on any tax-filing deadlines. The IRS will be unable to accept or acknowledge receipt of electronically-filed returns on any day the agency is shut down.

Similarly, tax-payment deadlines are also unaffected. The only tax payment deadlines coinciding with any of the furlough days relate to employment and excise tax deposits made by business taxpayers. These deposits must be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS), which will operate as usual.

On the other hand, the agency will give taxpayers extra time to comply with a request to provide documents to the IRS. This includes administrative summonses, requests for records in connection with a return examination, review or compliance check, or document requests related to a collection matter. No additional time is given to respond to other agencies or the courts.

Where the last day for responding to an IRS request falls on a furlough day, the taxpayer will have until the next business day. If the last day to respond is Friday, May 24, for example, the taxpayer will have until Tuesday, May 28, to comply (Monday, May 27 is Memorial Day). Further details on the impact of the shutdown on IRS procedures will be available on IRS.gov.

Some web-based online tools and phone-based automated services will continue to function on furlough days, while others will be shut down. Available services include Withholding Calculator, Order A Transcript, EITC Assistant, Interactive Tax Assistant, the PTIN system for tax professionals, Tele-Tax and the Online Look-up Tool for those needing to repay the first-time homebuyer credit. Services not available on those days include Where’s My Refund? and the Online Payment Agreement. Visit online tools on IRS.gov to learn more about these tools.

At a later date, the IRS may possibly announce one or two additional furlough days if necessary.

 

Questions and Answers on 501(c) Organizations

May 15, 2013

The IRS has received a variety of questions related to the exempt organization issues recently raised. Here are some basics on the issue.

1. What are the issues raised in the recent Treasury Inspector General for Tax Administration (“TIGTA”) report?

The issues relate to the application process for organizations seeking tax-exempt status. Part of the IRS’s responsibility is to review applications of organizations seeking tax-exempt status. Section 501(c)(3) organizations are required to get IRS approval. Others, including section 501(c)(4) organizations, are not required to get IRS approval, but often seek it.

2. Do the issues raised in the recent report relate to audits/ examinations?

No, the issues relate to the approval process of organizations that applied to the IRS for recognition of tax-exempt status. 

3. What does the IRS look for in the approval process? 

The IRS’s role is to determine whether organization meets the legal requirements for tax-exempt status. One requirement relates to the amount of political campaign intervention (“political activity”) that tax-exempt organizations may engage in. Section 501(c)(3) organizations are prohibited from engaging in any political activity. Other organizations, including section 501(c)(4) organizations, may only engage in a limited amount of political activity. 

4. Where does an organization send its application for tax-exemption?

All applications are sent to the IRS Determinations Office in Cincinnati. This office receives approximately 70,000 applications for tax-exempt status of all kinds each year. This includes applications from section 501(c)(3) and section 501(c)(4) organizations. This office, which includes fewer than 200 people working directly on applications, is primarily responsible for working determination applications. Determinations staff may consult with tax law specialists in Washington on how the law applies to their case. 

5. Has the IRS seen an increase in the number of applications in which the organization is potentially engaged in political activity?

Yes, the IRS has seen an increase in the number of section 501(c)(4) applications in general. The number of applications has more than doubled in recent years. In addition, the IRS has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity. This includes both section 501(c)(3) and section 501(c)(4) organizations.

6. How did the IRS handle the increase in the number of applications from organizations that appeared to be engaged in political activity?

As done in the past in other situations, such as credit counseling and down payment assistance), the IRS selected cases using identified criteria so that cases needing further review would be worked consistently. This means that cases meeting the selection criteria were centralized and assigned to designated employees developing expertise in the area so that they could be worked in a fair and consistent manner. 

7. How are decisions made regarding what cases should be centralized in this area?

Cases are selected for centralization if there are indications in the application that the organization may engage in political campaign intervention, lobbying, or advocacy. This was done to ensure that the legal requirements related to these activities are applied in a fair and consistent manner. The set of criteria was revised at a later point in order to avoid centralizing pure lobbying organizations that did not require follow-on development. During certain periods (August 2010 to July 2011 and January 2012 to June 2012), specific names, terms and policies (such as Tea Party and Patriot) were inappropriately used as criteria in determining which cases should be centralized. However, case selection during these periods was not limited to these criteria. 

8. What cases were centralized?

The TIGTA report reflects that 300 cases were centralized. Approximately 70 of those cases included the name Tea Party. The remaining cases included organizations of all political views. The current number of centralized cases is approximately 470.

9. Why did IRS employees look at Tea Party organizations?

IRS employees had seen cases of organizations with the name Tea Party in which political activity was an issue that needed to be reviewed for compliance with legal requirements. Because of the increased inventory of applications, this inappropriate criterion was used as a shortcut to centralize similar cases.

10. Would organizations with Tea Party in the name have been centralized if only appropriate selection criteria had been used?

Yes, in most cases the organization would have been centralized based on the information included in the application. The IRS should have focused on this information instead of using a shortcut.

11. Were centralized cases worked differently depending on which selection criteria was used?

No, centralized cases were not worked differently depending on which selection criteria was used.

12. Did mistakes occur in working the centralized cases?

Yes. Applicants whose cases were centralized unfortunately experienced inappropriate delays and over-expansive information requests in some cases. This was caused by ineffective processes and not related to the selection criteria used for the centralization of a case.

13. Is there any evidence of political bias in selecting cases for centralization or in working those cases?

The TIGTA report included no findings of political bias. In addition, the IRS has found no indication of political bias. 

14. How many centralized applications have been approved?

Since centralization, more than 175 applications have been approved to date. As with all applications for tax-exempt status that are approved, the names of organizations whose applications have been approved are publicly available.

 

MoreTaxpayers e-file from Home in 2013

IR-2013-52, May 20, 2013

WASHINGTON — The Internal Revenue Service today provided updated statistics showing continued growth in electronic filing of tax returns. So far in 2013, more than 43 million people have self-prepared and e-filed their tax returns from home, an increase of more than 4 percent compared to the prior year.

Through May 10, the IRS received more than 43.6 million self-prepared e-file returns, up from 41.7 million a year earlier. E-filed returns from tax professionals increased slightly, reaching almost 70.4 million. In all, almost 114 million tax returns came in through e-file this year, up from 112.1 million at this point last year.

Other highlights from the new filing season statistics show:

·         During 2013, the IRS issued more than 101 million refunds worth almost $268 billion.

·         Almost 80 percent of refunds used direct deposit.

·         More people are using IRS.gov to get answers, file their returns and resolve issues. So far in 2013, the IRS web site has been accessed more than 300 million times, up almost 25 percent compared to the same time last year.

 

2013 FILING SEASON STATISTICS

Cumulative statistics comparing 5/11/12 and 5/10/13

Individual Income Tax Returns:

2012

2013

% Change

Total Receipts

135,473,000

134,349,000

-0.8

Total Processed

130,261,000

129,674,000

-0.5

 

 

 

 

E-filing Receipts:

 

 

 

TOTAL           

 112,089,000

113,954,000

1.7

Tax Professionals

70,344,000

70,380,000

0.1

Self-prepared

41,745,000

43,574,000

4.4

 

 

 

 

Web Usage:

 

 

 

Visits to IRS.gov

255,269,615

318,408,842

24.7

 

 

 

 

Total Refunds:

 

 

 

Number

102,522,000

101,082,000

-1.4

Amount

$277.180

Billion

$267.946

Billion

-3.3

Average refund

 $2,704

$2,651

-2.0

 

 

 

 

Direct Deposit Refunds:

 

 

 

Number

 79,308,000

79,880,000

 0.7

Amount

$231.656

Billion

$228.467

Billion

-1.4

Average refund

 $2,921

$2,860

-2.1

 

 

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IRS Gives Tax Relief To Oklahoma Tornado Victims; Return Filing and Tax Payment Deadlines Extended to Sept. 30

IR-2013-53, May 21, 2013

WASHINGTON –– After Monday’s devastating tornado in Moore and Oklahoma City,   the Internal Revenue Service today provided tax relief to individuals and businesses affected by this and other severe storms occurring in parts of Oklahoma.

Following Monday’s disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties will receive special tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on May 18, 2013. As a result, affected individuals and businesses will have until Sept. 30, 2013 to file these returns and pay any taxes due. This includes the June 17 and Sept. 16 deadlines for making estimated tax payments. A variety of business tax deadlines are also affected including the July 31 deadline for second quarter payroll and excise tax returns and the Sept. 3 deadline for truckers filing highway use tax returns.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The agency automatically provides this relief to any taxpayer located in the disaster area. Taxpayers need not contact the IRS to get this relief.

Beyond the relief provided to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who lives outside the disaster area but whose books, records or tax professional are located in the areas affected by these storms. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either last year’s or this year’s return. Claiming these casualty loss deductions on either an original or amended 2012 return will get the taxpayer an earlier refund but waiting to claim them on a 2013 return could result in greater tax savings depending upon other income factors.

In addition, the IRS is waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after May 18 and before June 3 if the deposits are made by June 3, 2013. Details on available relief can be found on the disaster relief page on IRS.gov.

The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visitdisasterassistance.gov.

The IRS is actively monitoring the situation and will provide additional relief if needed.

 

 

 

 

Compiled by Anthony Heras May 21, 2013

Hera’s Income Tax School

http://www.herasincometaxschool.com

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