IRS Has Nearly $1 Billion in Unclaimed Refunds That Expire April 15

IR-2013-29, IRS Has $917 Million for People Who Have Not Filed a 2009 Income Tax Return:

Refunds totaling just over $917 million may be waiting for an estimated 984,400 taxpayers who did not file a federal income tax return for 2009, the IRS announced today. However, to collect the money, a return for 2009 must be filed with the IRS no later than Monday, April 15, 2013.

The IRS estimates that half the potential refunds for 2009 are more than $500.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2009 returns, the window closes on April 15, 2013. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

IRS Extends Deadline for Hurricane Sandy Tax Break

The Internal Revenue Service has postponed until Oct. 15, 2013, the deadline to make an election to deduct losses for the preceding taxable year from Hurricane Sandy.

Notice 2013-21 postpones until Oct. 15, 2013, the deadline to make an election under Section 165(i) of the Tax Code to deduct in the preceding taxable year losses attributable to Hurricane Sandy that were sustained in federally declared disaster areas in Connecticut, Delaware, District of Columbia, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, and West Virginia.

Last October, Hurricane Sandy struck the East Coast, causing severe damage in a number of states, the IRS noted. President Obama issued major disaster and emergency declarations under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, for certain areas. The Federal Emergency Management Agency determined certain areas within those states and the District of Columbia to be eligible for Public Assistance or Public Assistance and Individual Assistance under the Stafford Act.

Section 165(i) provides that if a taxpayer sustains a loss attributable to a federally declared disaster occurring in a disaster area, the taxpayer may elect to deduct that loss on their tax return for the taxable year immediately preceding the taxable year in which the disaster occurred.

Section 1.165-11(e) of the Income Tax Regulations requires a taxpayer to make the election by filing a return, an amended return or a refund claim on or before the later of: (1) the due date of the taxpayer’s income tax return (determined without regard to any extension of time for filing the return) for the taxable year in which the disaster actually occurred; or (2) the due date of the taxpayer’s income tax return (determined with regard to any extension of time for filing the return) for the immediately preceding taxable year.

Section 1.165-11(e) provides that the return or claim should specify the date or dates of the disaster that gave rise to the loss, and the city, town, county and state in which the property that was damaged or destroyed was located at the time of the disaster. The election is irrevocable 90 days after the taxpayer makes it.

Section 7508A gives the Treasury Secretary the authority to postpone the time for performing certain acts under the tax laws for up to one year for a taxpayer affected by a federally declared disaster. Under that authority, the IRS is granting affected taxpayers a postponement until Oct. 15, 2013, to make an election under Section 165(i) for losses attributable to Hurricane Sandy.

To help the IRS identify affected taxpayers to ensure that they receive this postponement of the deadline to make the Section 165(i) election, they should include a reference to this notice, Notice 2013-21, with their return, amended return or refund claim on which they are making a postponed Section 165(i) election.

The return or claim should also include the other information requested in Section 1.165-11(e).

IRS Now Accepting All 2012 Returns

WASHINGTON — The Internal Revenue Service announced today that it has finished updating its tax-processing systems allowing all remaining individual and business taxpayers to file their 2012 federal income tax returns.

Over the weekend, the IRS completed reprogramming and testing of its systems for tax-year 2012 including all remaining updates required by the American Taxpayer Relief Act (ATRA) enacted by Congress in January. This final step clears the way for those claiming residential energy credits on Form 5695 and various business tax credits and deductions to file their returns.

The IRS began accepting 2012 returns in phases as it worked quickly to update various forms and instructions and made critical adjustments to its processing systems to reflect the current law. As a result, the agency began accepting most returns filed by individual taxpayers on Jan. 30. Additional returns could be accepted in February. All remaining returns, affecting in relative terms the smallest group of taxpayers, can now be filed. 

With just six weeks to go before this year’s April 15 deadline, the IRS reminds taxpayers that the best way to file an accurate return is to e-file, choose direct deposit if expecting a refund and take advantage of the wide variety of tax-filing and tax-help resources available on IRS.gov.

IRS to Enable Remaining Tax Forms by Early March

The Internal Revenue Service plans to allow more of the remaining tax forms that have not been available for electronic filing yet this tax season to go through during the first week of March. In an email to software developers and transmitters on Wednesday, the IRS noted that due to late legislation, the IRS delayed startup for the tax forms listed below until the first week in March. To ensure there are no issues with accepting the forms for downstream processing, the IRS is asking software developers and transmitters to adhere to the following plan: The schemas and business rules will be deployed in the Production environment during the March 3, 2013 Sunday maintenance window. When the Production environment becomes operational at 7:00 am Eastern Time, transmitters should only send their stockpiled inventory of tax returns they have held back, evenly spread throughout the day on Sunday, This will allow the IRS’s Modernized e-File system team to quickly review the reject trends for the returns to ensure the schemas and business rules work as intended. “Please do not enable online filing for the forms until the IRS officially announces the processing of these forms targeted for the first week of March,” the IRS asked. Barring any problems, the IRS will then send out a QuickAlert email early in the week announcing the official opening. At that time, it will ask companies to enable online filing for these forms.

IRS says there are problems with Education Credit Filings

The Internal Revenue Service said Wednesday that it has observed problems with the filings for education tax credits that could be delaying processing of the tax returns.

“We have observed instances in which the Form 8863, Education Credits, attached to the Form 1040 and 1040A is not completed correctly,” the IRS said in an email Wednesday. “These instances are causing downstream processing delays.”

The IRS noted that it has experienced the following two conditions: (1) Form 8863 Part III Line 25 Yes or No checkboxes are not completed when required, and (2) Form 8863 Part III Line 26 Yes or No checkboxes are not completed when required.

The IRS pointed out that the Form 8863 instructions specify that if taxpayers have checked “Yes” on Line 24, they should go to line 25. On line 25, taxpayers should check “Yes” if the student completed the first four years of postsecondary education before 2012. Otherwise, they should check “No.”

If the taxpayer has checked “No,” they should go to line 26. If they have checked “Yes,” the student is not eligible for the American Opportunity Credit, and should therefore skip lines 26 through 30 and go to line 31.

On line 26, the taxpayer should check “Yes” if the student was convicted, before the end of 2012, of a federal or state felony for possession or distribution of a controlled substance. If the taxpayer has checked “No,” they should complete either lines 27 through 30 or line 31 for this student. If they checked “Yes,” the student is not eligible for the American Opportunity Credit and should skip those lines.

The IRS noted that it is working to implement business rules to reject the incorrectly completed returns, but has not determined the date for the new business rules.

IRS is requesting that software packages be modified to require completion of the correct boxes on lines 25 and 26 when appropriate. Also, the appropriate checkboxes should be completed for lines 23 and 24. The IRS also wants to get this information out to the the tax practitioner community.

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

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-2013-12.

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.

Relatives as Dependents more Relevant than Ever

More and more, we are teaming up in families to support each other.  As we care for elderly parents, sometimes because we have lost jobs or pensions, as adult children move back in with parents as a result of loss of jobs or homes, we find ourselves living multi-generationally.  

IRS gives some guidance: “Your mother received $2,400 in Social Security benefits and $300 in interest. She paid $2,000 for lodging and $400 for recreation. If you spend more than $2,400 to support her, supplementing what she spends, and if her annual income is less than $3,800, you can claim her as a dependent and take the full value of the exemption.”

If you are taking care of someone and that person’s care meets the IRS guidelines for age, income, residency tests and support, you might be able to claim the exemption. A qualifying relative does not need to live with you, but you must provide at least one half of his or her support. Furthermore, that person’s income cannot exceed the personal exemption of $3,800 in 2012.

For more information as you find out if you qualify to claim a relative as a dependent, call Afiya @ 404-532-9958.

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

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-2013-12.

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.

Can I claim my boyfriend (or girlfriend) on my tax return?

I get this question a whole lot.  AND, you can in some cases.  To claim a non-relative as a dependent, he or she had to live in your home for the full tax year and make less than $3,800 in gross income during that time. You also generally must provide more than half of the person's financial support, and he or she can't be claimed as a dependent by anyone else.

Call Afiya @ ComproATL for more information:  404-532-9958.

Court Modifies Ruling Invalidating Tax Preparer Regulations

WASHINGTON, D.C. (FEBRUARY 2, 2013)

BY MICHAEL COHN

A federal judge has denied the Internal Revenue Service’s request to suspend his January 18 ruling that struck down the IRS’s tax-preparer scheme as unlawful, but made some important clarifications to his original ruling. 

U.S. District Court Judge James E. Boasberg ruled Friday that no tax return preparer may be required to pay testing or continuing education fees or to complete any testing or continuing education while the injunction is in place, backing up his earlier ruling (see Court Rules Tax IRS Doesn’t Have Authority to Regulate Tax Preparers). The IRS had asked the judge to suspend his injunction on the tax preparer regulatory regime, arguing that it would disrupt tax season (see IRS to Appeal Ruling Barring Licensing of Tax Preparers).

The Institute for Justice, which had won the case on behalf of three independent tax preparers who sued to stop the IRS’s Registered Tax Return Preparer mandatory testing and continuing education regulatory regime, filed alegal brief countering the IRS’s arguments (see Tax Preparers Contest IRS Legal Ruling). In Boasberg’s latest ruling in the case Friday, he denied the IRS's motion for a stay, asking, “[W]hy should tax-return preparers continue to pay into a system the Court has found unlawful?”

However, Judge Boasberg clarified that his injunction did not affect a separate set of regulations requiring tax preparers to have a Preparer Tax Identification Number, or PTIN, or prevent the IRS from operating its testing or continuing education centers on a strictly voluntary basis.  

The court wrote today, “[S]ome preparers may wish to take the exam or continuing education even if not required to.  Such voluntarily obtained credentials might distinguish them from other preparers.”

“This is a great outcome for tax preparers nationwide,” said Dan Alban, lead attorney on the case at the Arlington, Va.-based Institute for Justice, who represented the three independent tax preparers who had challenged the IRS. “It allows them to continue preparing tax returns this tax season without having to get permission from the IRS. This is the best of both worlds—preparers who value the certification can still obtain it, but no tax preparer is forced to get a government permission slip to earn a living.”

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. 

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found inRevenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

• E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

IRS ANNOUNCES GUIDANCE ON THE PRINCIPAL REDUCTION ALTERNATIVE OFFERED IN THE HOME AFFORDABLE MODIFICATION PROGRAM (HAMP)

IR-2013-8, Jan. 24, 2013
WASHINGTON — The Internal Revenue Service today announced guidance to borrowers, mortgage loan holders and loan servicers who are participating in the Principal Reduction AlternativeSM offered through the Department of the Treasury’s and Department of Housing and Urban Development’s Home Affordable Modification Program® (HAMP-PRA®).
To help financially distressed homeowners lower their monthly mortgage payments, Treasury and HUD established HAMP, which is described at www.makinghomeaffordable.gov. Under HAMP-PRA, the principal of the borrower’s mortgage may be reduced by a predetermined amount called the PRA Forbearance Amount if the borrower satisfies certain conditions during a trial period. The principal reduction occurs over three years.  more...

http://4closurefraud.org/2013/01/25/irs-announces-guidance-on-the-principal-reduction-alternative-offered-in-the-home-affordable-modification-program-hamp/

IRS To Accept Returns Claiming Education Credits by Mid-February

WASHINGTON - As preparations continue for the Jan. 30 opening of the 2013 filing season for most taxpayers, the Internal Revenue Service announced today that processing of tax returns claiming education credits will begin by the middle of February. 

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits -- the American Opportunity Tax Credit and the Lifetime Learning Credit.

The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. People otherwise able to file and claiming these benefits can start filing Jan. 30.

As it does every year, the IRS reviews and tests its systems in advance of the opening of the tax season to protect taxpayers from processing errors and refund delays. The IRS discovered during testing that programming modifications are needed to accurately process Forms 8863.  Filers who are otherwise able to file but use the Form 8863 will be able to file by mid-February. No action needs to be taken by the taxpayer or their tax professional.  Typically through the mid-February period, about 3 million tax returns include Form 8863, less than a quarter of those filed during the year.

The IRS remains on track to open the tax season on Jan. 30 for most taxpayers. The Jan. 30 opening includes people claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction. Forms that will be able to be filed later are listed on IRS.gov.

Updated information will be posted on IRS.gov.

IRS ANNOUNCES GUIDANCE ON THE PRINCIPAL REDUCTION ALTERNATIVE OFFERED IN THE HOME AFFORDABLE MODIFICATION PROGRAM (HAMP)

IR-2013-8, Jan. 24, 2013

IR-2013-8, Jan. 24, 2013

WASHINGTON — The Internal Revenue Service today announced guidance to borrowers, mortgage loan holders and loan servicers who are participating in the Principal Reduction Alternative^SM offered through the Department of the Treasury’s and Department of Housing and Urban Development’s Home Affordable Modification Program^® (HAMP-PRA^®).

To help financially distressed homeowners lower their monthly mortgage payments, Treasury and HUD established HAMP, which is described at www.makinghomeaffordable.gov. Under HAMP-PRA, the principal of the borrower’s mortgage may be reduced by a predetermined amount called the PRA Forbearance Amount if the borrower satisfies certain conditions during a trial period. The principal reduction occurs over three years.

More specifically, if the loan is in good standing on the first, second and third annual anniversaries of the effective date of the trial period, the loan servicer reduces the unpaid principal balance of the loan by one-third of the initial PRA Forbearance Amount on each anniversary date. This means that if the borrower continues to make timely payments on the loan for three years, the entire PRA Forbearance Amount is forgiven. To encourage mortgage loan holders to participate in HAMP–PRA, the HAMP program administrator will make an incentive payment to the loan holder (called a PRA investor incentive payment) for each of the three years in which the loan principal balance is reduced.

Guidance on Tax Consequences to Borrowers

The guidance issued today provides that PRA investor incentive payments made by the HAMP program administrator to mortgage loan holders are treated as payments on the mortgage loans by the United States government on behalf of the borrowers. These payments are generally not taxable to the borrowers under the general welfare doctrine.

If the principal amount of a mortgage loan is reduced by an amount that exceeds the total amount of the PRA investor incentive payments made to the mortgage loan holder, the borrower may be required to include the excess amount in gross income as income from the discharge of indebtedness. However, many borrowers will qualify for an exclusion from gross income.

For example, a borrower may be eligible to exclude the discharge of indebtedness income from gross income if (1) the discharge of indebtedness occurs (in other words, the loan is modified) before Jan. 1, 2014, and the mortgage loan is qualified principal residence indebtedness, or (2) the discharge of indebtedness occurs when the borrower is insolvent. For additional exclusions that may apply, see Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Borrowers receiving aid under the HAMP–PRA program may report any discharge of indebtedness income — whether included in, or excluded from, gross income — either in the year of the permanent modification of the mortgage loan or ratably over the three years in which the mortgage loan principal is reduced on the servicer’s books. Borrowers who exclude the discharge of indebtedness income must report both the amount of the income and any resulting reduction in basis or tax attributes on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).

Guidance on Tax Consequences to Mortgage Loan Holders

The guidance issued today explains that mortgage loan holders are required to file a Form 1099-C with respect to a borrower who realizes discharge of indebtedness income of $600 or more for the year in which the permanent modification of the mortgage loan occurs. This rule applies regardless of when the borrower chooses to report the income (that is, in the year of the permanent modification or one-third each year as the mortgage loan principal is reduced) and regardless of whether the borrower excludes some or all of the amount from gross income.

Penalty relief is provided for mortgage loan holders that fail to timely file and furnish required Forms 1099-C, as long as certain requirements described in the guidance are satisfied.

Details are in Revenue Procedure 2013-16 available on IRS.gov.

SOURCE: http://www.irs.gov

ComproTax

Don't Leave Money on the Table!

My tax client had not thought about or remembered the child care credit.  My tax program told me that her baby was three, and I knew that she worked full-time as a single mother.  So:  who kept the child?  Did she pay someone?  She said, "Oh, yes, she goes to a child care center."  I am so proud that at ComproTax we have concern enough to ask.  She could have walked right out the door and left a about $600.00 on the table.

IRS to Appeal Ruling Barring Licensing of Tax Preparers

WASHINGTON, D.C. (JANUARY 24, 2013)

BY ANDREW ZAJAC

BLOOMBERG

(Bloomberg) The Internal Revenue Service said it will appeal a court’s ruling that it lacks the power to license tax preparers, a decision that might affect as many as 700,000 people who work on clients’ returns.

Immediately discontinuing the agency’s tax preparer oversight program “would result in a substantial disruption to tax administration,” the IRS said in a court filing yesterday accompanying a request to lift a court order barring it from regulating return preparers during its appeal.

U.S District Judge James Boasberg in Washington, D.C., ruling on a lawsuit filed by three preparers, invalidated the program Jan. 18. The agency overstepped its authority by relying on an 1884 law that allows it to regulate people presenting cases before the Treasury Department, he said.

Program Proponents
Tax-preparation companies have expressed support for the program.

“We have been proponents of oversight, not to disadvantage competitors but in favor of consumers,” said Julie Miller, a spokeswoman for Intuit, the maker of TurboTax.

The IRS said the rules were designed to impose standards on return preparers who aren’t certified public accountants, attorneys or enrolled agents already licensed to practice before the agency.

The idea, promoted by Douglas Shulman while he was IRS commissioner, was to impose minimum standards and help the agency thwart tax fraud.

The agency’s licensing program affects from 600,000 to 700,000 preparers “who are responsible for a substantial number of the more than 80 million returns filed each year,” the IRS said in court papers.

The program required preparers to register with the federal government, pass a competency test and meet continuing-education requirements. A 15-hour continuing-education regime began in 2012 and the testing was set to go into effect this year.

Registration Fees
Almost 100,000 return preparers have registered to take the test and the IRS has collected more than $100 million in registration and competency-testing user fees, according the IRS filing. The agency said it has spent more than $50 million and assigned 167 employees to operate the program.

The IRS also would probably face lawsuits and demands for fee refunds if the injunction isn’t lifted during an appeal, the court filing said.

“All these actions—and taxpayer funds—would be wasted if the Court of Appeals subsequently overturned this court’s decision and reinstated the return preparer program,” the IRS said in its request to Boasberg to suspend the injunction against the program for at least 14 days to allow an appeal.

The case is Loving v. Internal Revenue Service, 12-cv- 00385, U.S. District Court, District of Columbia (Washington).

Small Business Tax Incentives in the Fiscal Cliff Deal

by Karen Mills, SBA Administrator

America’s 28 million small businesses are the backbone of our economy. This past week, the Taxpayer Relief Act of 2012 delivered them some really good news.

The solution reached by the President and Congress included extensions of several small businesses tax incentives designed to spur innovation, support capital investment, and make it easier to hire new workers.   In fact, the legislation extended some of the most important tax credits that the President signed into law during his first term.  In addition, under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up, avoiding a negative impact on small business revenues.

Our economy is gaining momentum. Small businesses continue to drive innovation and job creation in industries across the country. Our goal is to make sure these entrepreneurs have the wind at their backs and the access and opportunity they need to grow their operations, reach new customer and create jobs in our communities.

Below are some of the key tax incentive extensions your business could be using today. Whether you’ve made R&D or equipment investments or hired veteran employees, you stand to benefit from one or more of the extended tax incentives.  What’s more, small businesses looking for investors can benefit from the 100 percent exclusion of gain on small business stock. 

R&D Tax Credit.  The law extends the research and experimentation tax credit (popularly known as the R&D credit), which had officially expired at the end of 2011, through 2013.  In addition the law allows businesses to apply the credit retroactively to investments made in 2012.

Section 179 Deduction. Section 179 of the tax code permits small businesses to deduct the cost of certain new and used property placed in service for the year rather than depreciate those costs over time.  The new law extends the maximum deduction to $500,000 for the 2012 and 2013 tax years for companies with under $2 million in qualifying capital expenditures.

Bonus Depreciation. The bonus depreciation provision enables small businesses to recover the costs of qualified new equipment faster than the ordinary schedule, by permitting the depreciation of 50 percent of the cost in the first year. The provision was set to expire at the end of 2012, but has been extended through the end of 2013 (and 2014 for certain types of property).

Work Opportunity Tax Credit. The new law extends through 2013 the tax credits for employers who hire military veterans or individuals from underserved communities that have faced barriers to employment.

Other Small Business Tax Credits. There are a handful of other targeted tax credits that were extended for 2012 and 2013, including: the new markets tax credit for businesses that invest in certain community development entities and other qualified investments; a reduction in the recognition period for S-corporation built-in gains tax; and a reduction in the time from 39 years to 15 over which a business can recover the cost of certain leasehold improvements and restaurant and retail property; among other targeted provisions.

About the Author

Karen Gordon Mills is the Administrator of the U.S. Small Business Administration. The SBA helps both Main Street and high-growth small businesses get access to capital, counseling, federal contracts, disaster assistance and more.

IRS Plans Next Move after Court Invalidates Tax Preparer Regulation

WASHINGTON, D.C. (JANUARY 22, 2013)

BY MICHAEL COHN AND DANIEL HOOD

The Internal Revenue Service reacted Tuesday to the surprise ruling Friday by a federal judge striking down the IRS’s authority to regulate tax preparers, shutting down its Preparer Tax Identification Number registration system and its testing system for tax preparers.

“As of Friday, Jan. 18, 2013, the United States District Court for the District of Columbia has enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers,” the IRS said in a statement Tuesday. “In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, 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.

“The Internal Revenue Service, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program,” the IRS added. “It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.”

IRS spokesman Dean Patterson said Tuesday that the IRS had no further comment at this time.

The director of the IRS’s Return Preparer Office, Carol Campbell, held a brief conference call Tuesday afternoon with representatives of approximately 25 stakeholder associations such as the National Association of Tax Professionals. Campbell verified that the online PTIN system is down and the IRS is no longer allowing the scheduling of RTRP exams. The IRS also told participants on the conference call that the RTRP testing system would go down by the end of the day, and if preparers have an exam scheduled, they would not be able to take it.

Paul Cinquemani, director of government relations at the NATP, who was on the call, said Campbell told them, “I thought about taking questions, but frankly, we don’t have all the answers.” Cinquemani also reported that Campbell encouraged the participants on the call to send in their questions, so the IRS could take them into consideration as it determines how to move forward.

Cinquemani believes the PTIN registration system will only be down temporarily. The system for registering to take the RTRP exam was handled through the PTIN registration system, so the former was most likely closed down to disentangle it from the latter.

In the case challenging the IRS’s authority to regulate tax preparers, three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wis.—joined forces with the Institute for Justice, a libertarian public interest law firm, in filing suit against the IRS in the U.S. District Court for the District of Columbia.

“The decision in the Loving case took most people in the industry by surprise,” said Cinquemani. “There is a clamor for information and answers to questions that just won’t be available for weeks, if not months. The IRS released a statement today that did not reveal much. One could read an intent, in the second paragraph, to pursue the court decision further. It seems to me that the IRS has the following options available: They could appeal the court’s decision and ask for a stay of the injunction in the interim; they could go ask Congress for a piece of legislation that would grant them the authority denied by the court; or they could consent and comply with the decision. If they did this, they could either abandon the registered tax return program entirely, or make it a voluntary credential to be earned as the EA designation is.”

The National Association of Enrolled Agents also weighed in on the decision. “This decision is—at least temporarily—a setback for taxpayers, and for tax administration,” said Robert Kerr, senior director of government relations at the NAEA, which represents over 45,000 enrolled agent tax practitioners. “Some would argue, in fact, that the decision is a victory for those who would like the right to remain incompetent, to remain completely ignorant of the many annual changes in tax law and administrative procedure, and to foist the cost of their willful ignorance onto their clients.”

Fred Slater, CPA, managing member of New York City-based tax prep firm MS1040 LLC and former chair of the New York State Society of CPAs’ IRS Relations Committee, said he agrees with the judge’s decision in the case. “I think it’s a good decision in terms of reality because what has happened is the IRS set up all these guidelines to try to ‘regulate’ the tax preparers, and then once they did that they proceeded to exclude the CPA, the enrolled agents, to some degree, and the tax attorneys so you ended up with a dual system, which is fine because that’s the practicality of what each side services,” he said. “Then they proceeded to put out rules of what both sides are supposed to follow, and you can’t do that. You end up with this situation where everyone is registering, and paying 60-something bucks every year to prepare tax returns. What could happen and what I’m hoping will happen is that Congress will respond to it, not the IRS, and come out with two sets of rules. There should be a set of rules for those that are not enrolled, not CPAs and not tax attorneys, because they don’t have the official training, and they don’t have the ethics codes that we have to have. I’m not saying that all CPAs and attorneys are perfect, but that’s the group that is the most out of control and they are trying to regulate that.”

He also sees a role for the states regulating the tax preparation profession if Congress is unable to pass a law, but he pointed out that many tax preparers have clients in multiple states. Currently only two states have laws requiring registration, testing or continuing education of tax preparers: California and Oregon. Congress has reportedly failed to pass eight different bills over the past decade aimed at giving the IRS the ability to regulate tax preparers.

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