IR-2013-64: Reminder: IRS to be Closed July 5 Due to Budget and Sequester; Filing and Payment Deadlines Unchanged

IR-2013-64, July 3, 2013

WASHINGTON — The Internal Revenue Service today reminded taxpayers that due to the current budget situation, including the sequester, the agency will be shut down on Friday, July 5.

As was the case on May 24 and June 14, the first two furlough days, all IRS operations will again be closed on July 5. 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.

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. This includes the special July 15 filing and payment deadline for those affected by the Boston Marathon explosions. Taxpayers needing to contact the IRS about this or other upcoming returns or payments should be sure to take this Friday’s closure into account.

Because none of the furlough days are considered federal holidays, the shutdown will have no impact on any tax-filing or tax-payment deadlines. The IRS will be unable to accept or acknowledge receipt of electronically-filed returns on any day the agency is shut down.

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 July 5, the taxpayer will have until Monday, July 8, the next business day.

Some web-based online tool and phone-based automated services will continue to function this Friday, while others will be shut down. Available services include Withholding Calculator, Order A Transcript, EITC Assistant, Interactive Tax Assistant, Tele-Tax and the Online Look-up Tool for those needing to repay the first-time homebuyer credit. Services not available this Friday include Where’s My Refund?, the Online Payment Agreement and the online preparer tax identification number PTIN system for tax professionals. Visit online tools on IRS.gov to learn more about these tools.

The remaining scheduled furlough days are July 22 and Aug. 30, 2013. If necessary, the IRS may announce one or two additional furlough days.

The IRS will also be closed as scheduled on Thursday for the Fourth of July federal holiday

IR-2013-44: IRS Releases Final Report on Tax-Exempt Colleges and Universities Compliance Project

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 Tax Tip 2013-62: Tips to Start Planning Next Year’s Tax Return

 

For most taxpayers, the tax deadline has passed. But planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are six things you can do now to make next April 15 easier.

 

  1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
  2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.
  3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.
  4. Shop for a tax professional.  If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you’re not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at IRS.gov.
  5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.
  6. Keep up with changes.  Find out about tax law changes, helpful tips and IRS announcements all year by subscribing to IRS Tax Tips through IRS.gov or IRS2Go, the mobile app from the IRS. The IRS issues tips regularly during the summer and tax filing season.

 

You can find forms and publications at IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Resources:

 

IRS Tax Tip 2013-61: IRS Offers Tips for Dealing with Notices

Each year, the IRS sends millions of letters and notices to taxpayers for a variety of reasons. Here are ten things you should know about IRS notices in case one shows up in your mailbox.

  1. Don’t panic. Many of these letters require a simple response.
  2. There are many reasons why the IRS sends correspondence. If you receive an IRS notice, it will typically cover a very specific issue about your account or tax return. Notices may require payment, notify you of changes to your account or ask you to provide more information.
  3. Each notice offers specific instructions on what you need to do to satisfy the inquiry.
  4. If you receive a notice advising you that the IRS has corrected your tax return, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree. Include any information and documents you want the IRS to consider with your response. Mail your reply with the bottom tear-off portion of the IRS letter to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. You should be able to resolve most notices that you receive without calling or visiting an IRS office. If you do have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your inquiry.
  8. Remember to keep copies of any notices you receive with your other income tax records.
  9. The IRS sends notices and letters by mail. The agency never contacts taxpayers about their tax account or tax return by email.
  10. For more information about IRS notices and bills, visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. The publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

IRS Tax Tips – Six Facts on Tax Refunds and Offsets

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IRS Special Edition Tax Tip 2013-09: IRS Warns Donors about Charity Scams Following Recent Tragedies in Boston and Texas

It’s sad but true. Following major disasters and tragedies, scam artists impersonate charities to steal money or get private information from well-intentioned taxpayers. Fraudulent schemes involve solicitations by phone, social media, email or in-person.

Scam artists use a variety of tactics. Some operate bogus charities that contact people by telephone to solicit money or financial information. Others use emails to steer people to bogus websites to solicit funds, allegedly for the benefit of tragedy victims. The fraudulent websites often mimic the sites of legitimate charities or use names similar to legitimate charities. They may claim affiliation with legitimate charities to persuade members of the public to send money or provide personal financial information. Scammers then use that information to steal the identities or money of their victims.

The IRS offers the following tips to help taxpayers who wish to donate to victims of the recent tragedies at the Boston Marathon and a Texas fertilizer plant:

  • Donate to qualified charities.  Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified charitable organizations are tax-deductible. You can also find legitimate charities on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
  • Be wary of charities with similar names.  Some phony charities use names that are similar to familiar or nationally known organizations. They may use names or websites that sound or look like those of legitimate organizations.
  • Don’t give out personal financial information.  Do not give your Social Security number, credit card and bank account numbers and passwords to anyone who solicits a contribution from you. Scam artists 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 donation.
  • Report suspected fraud.  Taxpayers suspecting tax or charity-related fraud should visit IRS.gov and perform a search using the keywords “Report Phishing.”

More information about tax scams and schemes is available at IRS.gov using the keywords “scams and schemes.”

IRS Tax Tip 2013-59: Ten Facts on Filing an Amended Tax Return

 

What should you do if you already filed your federal tax return and then discover a mistake? Don’t worry; you have a chance to fix errors by filing an amended tax return. This year you can use the new IRS tool, ‘Where’s My Amended Return?’ to easily track the status of your amended tax return. Here are 10 facts you should know about filing an amended tax return.

 

  1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper.
  2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.
  3. You normally do not need to file an amended return to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.
  4. Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.
  5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.
  6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.
  7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.
  8. If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.
  9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, ‘Where’s My Amended Return?’ The automated tool is available on IRS.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. You can track the status of your amended return for the current year and up to three prior years.
  10. To use either ‘Where’s My Amended Return’ tool, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each. If you use the tool by phone, you will not need to call a different IRS phone number unless the tool tells you to do so.

 

IRS Tax Tip 2013-58: Eight Facts on Late Filing and Late Payment Penalties

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. By law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline.

Here are eight important points about penalties for filing or paying late.

1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should  explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

Note: The IRS recently announced special penalty relief to many taxpayers who requested an extension of time to file their 2012 federal income tax returns and some victims of the recent severe storms in parts of the South and Midwest. For details about these relief provisions, see IRS news releases IR-2013-31 and IR-2013-42. The IRS has also provided individual tax filing and payment extensions to those affected by the Boston explosions tragedy. See IR-2013-43 for more information.
Additional IRS Resources:

IRS Tax Tip 2013-57: IRS Fresh Start Program Helps Taxpayers Who Owe the IRS

The IRS Fresh Start program makes it easier for taxpayers to pay back taxes and avoid tax liens. Even small business taxpayers may benefit from Fresh Start. Here are three important features of the Fresh Start program:

• Tax Liens.  The Fresh Start program increased the amount that taxpayers can owe before the IRS generally will file a Notice of Federal Tax Lien. That amount is now $10,000. However, in some cases, the IRS may still file a lien notice on amounts less than $10,000.

When a taxpayer meets certain requirements and pays off their tax debt, the IRS may now withdraw a filed Notice of Federal Tax Lien. Taxpayers must request this in writing using Form 12277, Application for Withdrawal.

Some taxpayers may qualify to have their lien notice withdrawn if they are paying their tax debt through a Direct Debit installment agreement. Taxpayers also need to request this in writing by using Form 12277.

If a taxpayer defaults on the Direct Debit Installment Agreement, the IRS may file a new Notice of Federal Tax Lien and resume collection actions.

• Installment Agreements.  The Fresh Start program expanded access to streamlined installment agreements. Now, individual taxpayers who owe up to $50,000 can pay through monthly direct debit payments for up to 72 months (six years). While the IRS generally will not need a financial statement, they may need some financial information from the taxpayer. The easiest way to apply for a payment plan is to use the Online Payment Agreement tool at IRS.gov. If you don’t have Web access you may file Form 9465, Installment Agreement, to apply.

Taxpayers in need of installment agreements for tax debts more than $50,000 or longer than six years still need to provide the IRS with a financial statement. In these cases, the IRS may ask for one of two forms: either Collection Information Statement, Form 433-A or Form 433-F.

• Offers in Compromise.  An Offer in Compromise is an agreement that allows taxpayers to settle their tax debt for less than the full amount. Fresh Start expanded and streamlined the OIC program. The IRS now has more flexibility when analyzing a taxpayer’s ability to pay. This makes the offer program available to a larger group of taxpayers.

Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable period of time. The IRS will not accept an offer if it believes that the taxpayer can pay the amount owed in full as a lump sum or through a payment agreement. The IRS looks at several factors, including the taxpayer’s income and assets, to make a decision regarding the taxpayer’s ability to pay. Use the Offer in Compromise Pre-Qualifier tool on IRS.gov to see if you may be eligible for an OIC.

Additional IRS Resources:

IR-2013-43: IRS Announces Three-Month Filing, Payment Extension Following Boston Marathon Explosions

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 Tax Tip 2013-56: IRS Offers Tips for Taxpayers Who Missed the Tax Deadline

The IRS has some advice for taxpayers who missed the tax filing deadline.

  • File as soon as possible.  If you owe federal income tax, you should file and pay as soon as you can to minimize any penalty and interest charges. There is no penalty for filing a late return if you are due a refund.
  • Penalties and interest may be due.  If you missed the April 15 deadline, you may have to pay penalties and interest. The IRS may charge penalties for late filing and for late payment. The law generally does not allow a waiver of interest charges. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.
  • E-file is your best option.  IRS e-file programs are available through Oct. 15. E-file is the easiest, safest and most accurate way to file. With e-file, you will receive confirmation that the IRS has received your tax return. If you e-file and are due a refund, the IRS will normally issue it within 21 days.
  • Free File is still available.  Everyone can use IRS Free File. If your income is $57,000 or less, you qualify to e-file your return using free brand-name software. If you made more than $57,000 and are comfortable preparing your own tax return, use Free File Fillable Forms to e-file. This program uses the electronic versions of paper IRS forms. IRS Free File is available only through IRS.gov.
  • Pay as much as you can.  If you owe tax but can’t pay it all at once, you should pay as much as you can when you file your tax return. Pay the remaining balance due as soon as possible to minimize penalties and interest charges.
  • Installment Agreements are available.  If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.
  • Refunds may be waiting.  If you’re due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may be entitled to a refund. This could apply if you had taxes withheld from your wages, or you qualify for certain tax credits. If you don’t file your return within three years, you could forfeit your right to the refund.

For more information, visit IRS.gov.
Additional IRS Resources:

IR-2013-42: Penalty Relief Available to Some Storm Victims Unable To File On Time

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.

Up-to-date tax-filing information is always available on IRS.gov.

IRS Tax Tip 2013-55: Ten Helpful Tips for Paying Your Taxes

Are you making a payment with your federal tax return this year? If so, here are 10 important things the IRS wants you to know about correctly paying your federal income taxes.

1. Never send cash.

2. If you file electronically, you can file and pay in a single step with an electronic funds withdrawal. If you e-file by yourself you can use your tax preparation software to make the withdrawal. If you use a tax preparer to e-file, you can ask the preparer to make your tax payment electronically.

3. Whether you file a paper return or e-file your return, you can pay by phone or online with a credit or debit card. The company that processes your payment will charge a processing fee.

4. If you file Schedule A, Itemized Deductions, you may be able to deduct the credit or debit card processing fee on next year’s return. This is a miscellaneous itemized deduction subject to the 2 percent limit.

5. Electronic payment options provide another way to pay taxes by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and click on the ‘Payments’ tab near the top left of the home page for more details.

6. If you pay by check or money order, make sure it is payable to the “United States Treasury.”

7. Be sure to write your name, address and daytime phone number on the front of your payment. Also, write the tax year, form number you are filing and the first Social Security number listed on your tax return.

8. Complete Form 1040-V, Payment Voucher, and include it with your tax return and payment when mailing it to the IRS. Double-check the IRS mailing address. This will help the IRS process your payment accurately and efficiently. Go to IRS.gov to download and print this form.

9. Remember to enclose your payment with your return but do not staple it to any tax form.

10. For more information, call 800-829-4477 and select TeleTax Topic 158, Ensuring Proper Credit of Payments. You can also find out more in the Form 1040-V instructions available at IRS.gov.
Additional IRS Resources:

IR-2013-41: Certified Public Accountant Disbarred for Multiple Circular 230 Violations

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.

IRS Tax Tip 2013-54: Ten Facts about Adoption-Related Tax Savings

Adoption can create new families or expand existing ones. The expenses of adopting a child may also lower your federal tax. If you recently adopted or attempted to adopt a child, you may be eligible for a tax credit. You may also be eligible to exclude some of your income from tax. Here are ten things the IRS wants you to know about adoption tax benefits.

1. The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.

2. To be eligible, a child must generally be under 18 years old. There is an exception to this rule for children who are physically or mentally unable to care for themselves.

3. For 2012, the tax credit is nonrefundable. This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.

4. If your credit exceeds your tax, you may be able to carryforward the unused credit. This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013. You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.

5. Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion. Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return. E-file makes tax preparation easier and accurate. You can then print and mail your paper federal tax return to the IRS.

6. Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.

7. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you did not pay any qualified adoption expenses. See the instructions for Form 8839 for more information about this rule.

8. If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.

9. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you cannot claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

10. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on your income.

For more information, visit the IRS.gov website to see the Adoption Benefits FAQ page. Also, check out Form 8839 and its instructions. Both are available at IRS.gov or you can order the form by calling800-TAX-FORM (800-829-3676).

 

 

Additional IRS Resources:

 

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