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IRS Hot Topics of the Day

IRS Hot Topics of the Day . Dan Breece Lori Cacioppo April 14, 2010. Topics . Reminders for Last Minute Tax Filers Get Recovery Tax Breaks Return Preparer Initiative Collection Issues. Reminders for Last Minute Tax Filers. Deadlines Recovery Tax Breaks File Electronically

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IRS Hot Topics of the Day

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  1. IRS Hot Topics of the Day Dan Breece Lori Cacioppo April 14, 2010

  2. Topics • Reminders for Last Minute Tax Filers • Get Recovery Tax Breaks • Return Preparer Initiative • Collection Issues

  3. Reminders for Last Minute Tax Filers • Deadlines • Recovery Tax Breaks • File Electronically • Direct Deposit for Refunds • Pay Electronically • Extension of Time to File • Installment Agreements

  4. Don’t Miss the Deadline

  5. Recovery Tax Breaks • The Homebuyer Credit • Making Work Pay Credit • American Opportunity Credit • Home Energy Credit • New Car Tax and Fee Deduction

  6. Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA) • First time homebuyers have qualified for refundable tax credits as part of the economic stimulus package • With that program set to expire at the end of November, Congress voted to extend and expand the program • President Obama signed WHBAA into law, November 6, 2009

  7. First Time Homebuyer Creditfor 2008 Purchases • Maximum credit $7,500 • Repayment over 15 years - starting on tax year 2010 return • Purchases must have been completed between 4/9/2008 and 12/31/2008

  8. First Time Homebuyer Creditfor 2009 and 2010 Purchases • First Time Homebuyers • Maximum credit $8,000 ($4,000 for married filing separately), • Purchase must be completed between 01/01/2009 and 4/30/2010 • Long Time Homeowners • Maximum credit $6,500 ($3,250 for married filing separately) • Purchase must be completed between 11/7/2009 and 4/30/2010 • Credit allowed to homebuyers who sign a binding contract by 4/30/2010 and close by 6/30/2010 • No Repayment, unless home ceases to be main home within 3 years of purchase date • Taxpayers can elect to claim credit on their prior year return. 2009 purchases can be claimed on a 2008 return, either original or amended. 2010 purchases can be claimed on a 2009 return, either original or amended.

  9. Eligibility Requirements • Must be primary residence • Must close on the purchase prior to claiming credit • Must be a first-time homebuyer to claim the $7,500 credit for 2008 purchases or $8,000 credit for 2009/2010 purchases • Must not have not owned a home in the three years prior to the purchase • Must be long-time resident of same principal residence to claim $6,500 credit for purchases after 11/6/2009 • Must have owned and used the same principal residence for five consecutive years out of eight-year period ending on date of new purchase • Must file Form 5405 with relevant return

  10. Repayments of Credit • For 2008 purchases, normally repaid in 15 equal annual installments beginning in 2010 • For 2009/2010 purchases no repayment required unless a repayment trigger within 3 years

  11. Making Work Pay Credit • Maximum credit is 6.2% of earned income • Refundable • Phased out over modified AGI range of $75,000-$95,000 ($150,000-$190,000 if MFJ) • Available for tax years 2009 and 2010 • Figured on Schedule M or on 1040EZ worksheet • Reduced by economic recovery payment and government retiree credit

  12. Hope Education Credit • Hope credit modified for 2009 and 2010 • Maximum credit $2,500 • 100% of the first $2,000 of expenses • 25% of the next $2,000) • Available first four years of post-secondary education • Qualified expenses include course materials, tuition, and fees • 40% credit is refundable

  13. Nonbusiness EnergyProperty Credit • Increased to 30% • Limited to $1,500 for the total of all 2009 and 2010 purchases • Qualifying property definition revised including update to energy efficiency requirements

  14. Qualified Motor Vehicle Taxes • New deduction for qualified motor vehicle taxes on purchase of certain new cars, trucks, motorcycles or motor homes • Elect to add to standard deduction or take itemized deduction (if not electing sales tax deduction) • Limited to tax on first $49,500 • Applies to purchases made after February 16, 2009, and before January 1, 2010

  15. File Electronically Choose Direct Deposit for Refunds Buy Savings Bonds Check for Errors Pay Electronically Extension of Time to File Installment Agreement Other Reminders

  16. IRS Recommends Increased Oversight of Federal Tax Return Preparers (Presenter name) (Presenter title)

  17. Background • IRS Return Preparer Review • IRS Strategic Plan Objectives • Oversight agency interest • Consumer protection group concerns • Taxpayer Advocate concerns • Almost 9 out of 10 use a paid preparer/software

  18. Definition of Preparer for These Recommendations Any person who prepares for compensation any return of tax or any claim for refund of tax under the Internal Revenue Code

  19. Summary of Significant Recommendations • Registration, user fee, and Preparer Tax Identification Number (PTIN) usage requirements for all signing paid preparers • Competency testing for signing paid preparers who are not attorneys, certified public accountants, or enrolled agents • Continuing education requirements of 15 hours per year for signing paid preparers who are not attorneys, certified public accountants, enrolled agents, enrolled actuaries, or enrolled retirement plan agents • Tax compliance verification of all paid preparers

  20. 1. Registration, User Fee, PTIN • Recommendations: • Implement mandatory registration and user fee for all signing paid federal tax return preparers • Issue a PTIN to all registered preparers • Require renewal registration and user fee every three years

  21. 2. Competency Testing • Recommendations: • Require all unenrolled signing paid return preparers to pass a competency test within three years from the initial implementation date. No grandfathering for experience • Attorneys, CPAs, and enrolled agents would be exempt from testing • Develop two levels of competency tests 1) Wage and non-business 1040 returns and 2) Wage and small business 1040 returns (would expand to include other business returns in later years) (more)

  22. 2. Competency Testing • Recommendations (continued): • Allow individuals to take the tests an unlimited number of times during the initial three-year implementation phase • Individuals who pass the test will be permitted to sign returns as paid tax return preparers • After completion of the initial registration phase and testing has begun, new unenrolled preparers would be required to pass the competency test prior to receiving a PTIN

  23. 3. Continuing Education • Recommendations: • Require all unenrolled signing paid preparers to complete 15 Continuing Professional Education (CPE) hours per year, including 3 hours of federal tax law updates, 2 hours of ethics, and 10 hours of federal tax law • During three-year renewal registration, require self-certification of 45 hours of CPE completion (IRS will perform random verification)

  24. 4. Tax Compliance • Recommendations: • During the three-year phase-in period, tax compliance checks would be performed on all preparers after registration • After the three-year phase-in period, the IRS would begin conducting tax compliance checks prior to issuance or renewal of a PTIN. Similar to the testing requirement, tax compliance would become a condition of registration for new applicants. (more)

  25. 4. Tax Compliance • Recommendations (continued): • Existing preparers with potential tax compliance violations would be referred to the IRS Office of Professional Responsibility for investigation

  26. Additional Recommendations • Apply Circular 230 ethical standards to all signing and nonsigning paid preparers • Develop a comprehensive return preparer enforcement strategy • Develop a public awareness campaign to educate taxpayers, preparers, and employees on the new requirements and standards • Create a public database (more)

  27. Additional Recommendations • Establish an IRS task force that will seek the input of the software industry to address identified risks on software dependence and the possibility of establishing industry standards • Convene a working group to review the refund settlement product industry and explore opportunities to improve efficiency of refund delivery

  28. Efforts This Filing Season • Helping taxpayers choose a reputable preparer • Sending 10,000 letters to preparers with large volumes of returns with error-prone issues • Visiting thousands of preparers who receive the letters to discuss preparer obligations and responsibilities • Posing as taxpayers for the purpose of determining non-compliance • Working closely with the Department of Justice to pursue civil or criminal action as appropriate

  29. Also Coming Soon…Preparer E-File Mandate • Legislation was signed in late 2009 mandating preparers that file more than 10 individual or trust returns to e-file beginning 1/1/2011 • IRS has not yet issued rules or regulations • Analysis is underway on whether the mandate will be phased in and whether there will be exceptions, waivers, or taxpayer opt-outs

  30. In Preparation • If you file more than 10 individual or trust returns, are you enrolled and accepted to e-file? Do you have an Electronic Filing Identification Number (EFIN)? • If yes, all you need to do is file your customers’ returns electronically • If no, the first step is to enroll to participate in IRS e-file, also known as becoming an Electronic Return Originator (ERO). You may do this anytime. Visit IRS.gov and click on the e-file logo.

  31. Collection Issues • Notices • Federal Tax Liens • Installment Agreements • Offer in Compromise • Appealing Collection Issues

  32. Issuance of Notices

  33. Who Works What • After the last notice is issued: • Status 26: Worked by a Revenue Officer • Status 24: Queue – may be worked by Campus, ACS, TAC or Field Collection • Status 22: Referred to the Automated Collection System (ACS) • May also be worked at Taxpayer Assistance Centers (TAC) – walk-in sites

  34. Federal Tax Lien • Legal claim against property as security for tax debt • Arises after assessment, notice and demand, and neglect or refusal to pay • NFTL is filed to establish priority against competing creditors • Appeal rights after filing

  35. Levy/Seizure Authority • Final Notice issued at least 30 days prior to levy • Seizure: Property that is held by the taxpayer • Car, Boat, House, etc. • Levy: Property that belongs to the taxpayer that is held by someone else • Wages, bank accounts, retirement accounts, etc. • Levy on assets easily converted to cash first • Appeal Rights prior to levy within 30 days of notice • Collection Due Process hearing with Appeals Division

  36. Installment Agreements • TP can not full pay immediately • TP can make payments • TP can Full Pay prior to expiration of the Collection Statute • TP can make payments up to the expiration of the Collection Statute • Penalty and Interest continue to accrue • Payroll Deductions • Direct Debits • Monthly Remittances

  37. Streamlined Installment Agreements • Income Tax • Business or Individual • Out-of-Business Payroll Taxes • Balance due less than $25K • Can full pay in five years • All Federal tax returns must be filed • Financial statement may be required • Generally, Federal Tax Lien is considered

  38. Traditional Installment Agreements Collection Information Statement is required • Collection Financial Standards are used to help determine a taxpayer's ability to pay a delinquent tax liability • Allowances for food, clothing and other items, known as the National Standards. Taxpayers are allowed the total National Standards amount for their family size and income level, without questioning amounts actually spent • Maximum allowances for housing and utilities (based on family size) and transportation, known as the Local Standards, both vary by County. Unlike the National Standards, the taxpayer is allowed the amount actually spent or the standard, whichever is less

  39. What is an Offer in Compromise? • An agreement between the taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed

  40. Objectives of the OIC Program • Resolution in best interest of both the taxpayer and the government • Provide taxpayer a fresh start toward future compliance • Obtain what can be reasonably collected as early as possible and at least cost • Revenue that may not be collectable through other means

  41. Basis of OICs • Doubt as to Collectibility - doubt that the tax liability could be fully paid during the life of the statute • Effective Tax Administration - exceptional circumstance exists: public policy/equity/economic hardship • Doubt as to Liability - doubt exists that the assessed tax is correct

  42. OIC Payment Terms • Lump Sum Cash Offer • Short Term Periodic Payment Offer • Deferred Periodic Payment Offer

  43. Lump Sum Cash Offer • Payable in five or fewer installments upon written notice of acceptance • Offer must be accompanied by 20% of the amount being offered and the $150 application fee or a completed Form 656-A • 20% payment is not refundable, regardless of the outcome of the OIC

  44. Determining the Lump Sum Offer Amount • 5 or fewer installments in 5 months or less: • Realizable value of assets + amount that could be collected over 48 months (or time remaining on statute, whichever is less) • 5 or fewer installments in more than 5 months but within 24 months : • Realizable value of assets + amount that could be collected over 60 months of payments (or time remaining on statute, whichever is less)

  45. Determining the Lump Sum Offer Amount (continued) • 5 or fewer installments in more than 24 months: • Realizable value of assets + amount that could be collected over the time remaining on the statute

  46. Short Term Periodic Payment Offer • The offer amount must be paid within 24 months of the date the IRS received the offer • The first installment and the $150 application fee or a completed Form 656-A are due upon filing

  47. Determining the Short Term Periodic Payment Offer Amount • The offer amount must equal or exceed: The realizable value of assets + what could be collected over 60 months of payments, or the time remaining on the statute, whichever is less

  48. Deferred Periodic Payment Offer • Payable in installments in 25 or more months but within the life of the remaining statutory period for collection • Offer must be accompanied with the first proposed installment payment and the $150 application fee, or a completed Form 656-A

  49. Determining the Deferred Periodic Payment Offer Amount • The offer amount must equal or exceed: The realizable value of assets + the amount that could be collected through monthly payments during the remaining life of the collection statute.

  50. Processability Criteria The Taxpayer Must: 1. Not be a debtor in open bankruptcy 2. Submit $150 application fee or Form 656-A 3. Submit 20% payment if filing a Lump Sum Cash offer, or the first installment payment if filing a Short Term or Deferred Periodic Payment offer, or submit Form 656-A

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