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 2013-36: Home Office Deduction: a Tax Break for Those Who Work from Home

If you use part of your home for your business, you may qualify to deduct expenses for the business use of your home. Here are six facts from the IRS to help you determine if you qualify for the home office deduction.

1. Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes. In addition, the part of your home that you use for business purposes must also be:

• your principal place of business, or

• a place where you meet with patients, clients or customers in the normal course of your business, or

• a separate structure not attached to your home. Examples might include a studio, workshop, garage or barn. In this case, the structure does not have to be your principal place of business or a place where you meet patients, clients or customers.

2. You do not have to meet the exclusive use test if you use part of your home to store inventory or product samples. The exclusive use test also does not apply if you use part of your home as a daycare facility.

3. The home office deduction may include part of certain costs that you paid for having a home. For example, a part of the rent or allowable mortgage interest, real estate taxes and utilities could qualify. The amount you can deduct usually depends on the percentage of the home used for business.

4. The deduction for some expenses is limited if your gross income from the business use of your home is less than your total business expenses.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. Report your deduction on Schedule C, Profit or Loss From Business.

6. If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.

For more information, see Publication 587, Business Use of Your Home. It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

 

IRS Tax Tip 2013-11: Eight Tax Benefits for Parents

Your children may help you qualify for valuable tax benefits, such as certain credits and deductions. If you are a parent, here are eight benefits you shouldn’t miss when filing taxes this year.

1. Dependents. In most cases, you can claim a child as a dependent even if your child was born anytime in 2012. For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your children that were under age 17 at the end of 2012. If you do not benefit from the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. If you have qualifying children, you may get up to $5,891 dollars extra back when you file a return and claim it. Use the EITC Assistant to find out if you qualify. See Publication 596, Earned Income Tax Credit.

5. Adoption Credit. You may be able to take a tax credit for certain expenses you incurred to adopt a child. For details about this credit, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. Both credits may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See IRS Publication 970, Tax Benefits for Education.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970, Tax Benefits for Education.

8. Self-employed health insurance deduction – If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child. It applies to children under age 27 at the end of the year, even if not your dependent. See IRS.gov/aca for information on the Affordable Care Act.

Do Your Taxes and E-File for Free with Free File

WASHINGTON — All taxpayers have a fast, safe and free option when it comes to preparing their own federal taxes. It’s called Free File, and it’s available only at IRS.gov.

Free File offers brand-name tax software to people who earned $57,000 or less last year, which is 70 percent of all taxpayers. For those who earned more, there are free online fillable forms. Both options allow people to file returns electronically and use direct deposit, which is the fastest way to get refunds.

The nation’s leading tax software companies have partnered with the IRS to make their products available for free through IRS.gov. Each company sets its own eligibility criteria, generally based on income, state residency, age, military service or eligibility for the Earned Income Tax Credit (EITC). There is also a software option that is available in Spanish for people who earned $30,000 or less.
Free File does the hard work for you. The software asks questions; you provide the answers. It picks the right forms, does the math and helps you find all the tax benefits for which you are eligible.
All participating Free File partners have been vetted and use the latest in security technology. Some Free File software providers also offer state tax returns for free or for a fee.

Free File Fillable Forms is the electronic version of IRS paper forms. It’s best for people experienced and comfortable preparing their own returns on paper. It does not support state tax returns.

Some Free File software products also are available in select free tax preparation sites operated by Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE). Taxpayers can use VITA or TCE computers to access Free File, prepare their own state and federal returns with a trained and certified volunteer on stand-by to help and e-file – all for free.
To find a participating site near you, go to IRS.gov and search for “VITA” to find a self- preparation site location near you.

More than 36 million people have used Free File since it started in 2003. You can explore all your options at http://www.irs.gov/freefile.

Businesses, organizations, states or local governments may want to promote Free File to their employees, customers or clients with products from the IRS. Just go to http://www.freefile.irs.gov/partners to see what you can do to help. There are printable posters, a tax-day countdown widget for websites and prepared social media posts for your use.

Many Business Tax Filers Can File for 2012 Starting Feb. 4 But many others are Looking at late Feb. Early March before they can file

Many businesses will be able to file their 2012 federal income tax returns starting Monday, Feb. 4. Filers of forms affected by January tax law changes will need to wait until late February or early March.

These delay dates impact the release of your electronically prepared returns. They do not prevent Katherman Kitts from preparing your tax return.

Katherman Kitts wants to remind our clients that there is no push back on the March 15 (business filers) and the April 15 (individual filers) due dates for your tax returns. Therefore, we still need enough time to receive the information and to prepare your returns before the filing deadlines. Please, continue to send the information to prepare your returns as soon as possible.

The Monday opening covers non-1040 series business returns for calendar year 2012, including Form 1120 filed by corporations, Form 1120S filed by S corporations, Form 1065 filed by partnerships, Form 990 filed by exempt organizations and most users of Form 720 , Quarterly Excise Tax Return. This includes both electronic filers and paper filers.

While many businesses will be able to file starting Feb. 4, there are a number of business forms still being updated for 2012. The IRS will announce soon when individual and business taxpayers can begin filing returns that include any of the delayed forms. Processing of these forms were delayed while the IRS completes programming and testing of its processing systems to reflect changes made by the American Taxpayer Relief Act (ATRA) enacted by Congress on Jan. 2.
A full list of the affected forms is available on IRS.gov.

In addition to the forms listed on IRS.gov, filing of two other business forms is affected by the delay, but only for electronic filers. Businesses using Form 720 and filling out lines 13 and 14 cannot file yet electronically, but they can file on paper. Other Forms 720 are being accepted electronically. In addition, Form 8849 Schedule 3, Claim for Refund of Excise Taxes, is not currently being accepted electronically, but it can be filed on paper.

Additional information will be posted soon on IRS.gov.

Temporary Eligibility Expansion permits eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes and obtain relief

Internal Revenue Bulletin: 2012-51
December 17, 2012
Announcement 2012-46
Voluntary Classification Settlement Program — Temporary Eligibility Expansion

Table of Contents

I. PURPOSE
II. BACKGROUND
III. ELIGIBILITY
IV. EFFECT OF THE VCSP TEMPORARY ELIGIBILITY EXPANSION
V. APPLICATION PROCESS
VI. DRAFTING INFORMATION

This document provides notice and information regarding a temporary expansion of eligibility for the Voluntary Classification Settlement Program (VCSP) that will be available through June 30, 2013. The temporary eligibility expansion makes a modified VCSP available to taxpayers who would otherwise be eligible for the current VCSP but have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified. Eligible taxpayers that take advantage of this limited, temporary eligibility expansion agree to prospectively treat workers as employees and will receive partial relief from federal employment taxes.
I. PURPOSE

The Internal Revenue Service (IRS) has developed a new, temporary initiative to permit taxpayers who are otherwise eligible for the VCSP, but have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified, to apply for a modified version of the VCSP, the VCSP Temporary Eligibility Expansion. The VCSP Temporary Eligibility Expansion is available through June 30, 2013.

Like the VCSP, the VCSP Temporary Eligibility Expansion permits eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes and obtain relief similar to that obtained through the current Classification Settlement Program (CSP). The VCSP Temporary Eligibility Expansion is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. Payment under the VCSP Temporary Eligibility Expansion is higher than the payment under the VCSP, but the benefits are otherwise the same for taxpayers that want to voluntarily reclassify their workers but have not filed all required Forms 1099 for those workers. To participate, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP Temporary Eligibility Expansion, and enter into a closing agreement with the IRS.
II. BACKGROUND

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. For taxpayers under IRS examination, the current CSP is available to resolve federal employment tax issues related to worker misclassification if certain criteria are met. The CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows businesses and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.

In order to facilitate voluntary resolution of worker classification issues and achieve the benefits of increased tax compliance and certainty for taxpayers, workers, and the government, the IRS determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes. Accordingly, the VCSP was established on September 21, 2011, through Announcement 2011-64, 2011-41 I.R.B. 503. In response to feedback from taxpayers and taxpayer representatives, the VCSP is modified under Announcement 2012-45, 2012-51 I.R.B. , to (1) permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP; (2) clarify the current eligibility requirement that a taxpayer that is a member of an affiliated group within the meaning of section 1504(a) is not eligible to participate in the VCSP if any member of the affiliated group is under employment tax audit; (3) clarify that a taxpayer is not eligible to participate in the VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or the Department of Labor; and (4) eliminate the requirement that a taxpayer agree to extend the period of limitations on assessment of employment taxes as part of the VCSP closing agreement with the IRS.

To be eligible under the VCSP, a taxpayer must meet certain requirements, including having consistently treated the workers as nonemployees and having filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years with respect to the workers to be reclassified. Taxpayers that do not qualify under the VCSP because they have not filed all required Forms 1099 for the previous three years requested a similar program. The IRS decided to provide this limited, temporary eligibility expansion through June 30, 2013, to permit taxpayers that have not filed all required Forms 1099 to agree to voluntarily reclassify their workers prospectively and file and furnish any required Forms 1099 with respect to the workers being reclassified for the previous three years.
III. ELIGIBILITY

The VCSP Temporary Eligibility Expansion is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as nonemployees. The taxpayer cannot currently be under employment tax audit by the IRS. A taxpayer that is a member of an affiliated group within the meaning of section 1504(a) is considered to be under employment tax audit for purposes of the VCSP Temporary Eligibility Expansion if any member of the affiliated group is under employment tax audit. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the class or classes of workers by the Department of Labor or by a state government agency.

A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the class or classes of workers is eligible for the VCSP Temporary Eligibility Expansion if the taxpayer has complied with the results of that audit and is not currently contesting the classification in court.

In addition, in order to be eligible to participate in the VCSP Temporary Eligibility Expansion, a taxpayer must furnish to the workers and electronically file all required Forms 1099, consistent with the nonemployee treatment, with respect to the workers being reclassified for the previous three years prior to executing the VCSP Temporary Eligibility Expansion closing agreement with the IRS. Taxpayers must electronically file such Forms 1099 in accordance with IRS instructions, which will be provided once the IRS has reviewed the application and verified that the taxpayer is otherwise eligible for the VCSP Temporary Eligibility Expansion, as indicated in Section V, Application Process.

Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must submit an application, as indicated below in Section V, Application Process, on or before June 30, 2013.
IV. EFFECT OF THE VCSP TEMPORARY ELIGIBILITY EXPANSION

A taxpayer who participates in the VCSP Temporary Eligibility Expansion agrees to prospectively treat the class or classes of workers identified in the application as employees for future tax periods. In exchange, the taxpayer pays 25 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year if those workers were classified as employees for such year, determined under the reduced rates of section 3509(b); pays a reduced penalty, as discussed below, for unfiled Forms 1099 for the previous three years with respect to the workers being reclassified; is not liable for any interest and penalties on the liability; and is not subject to an employment tax audit with respect to the worker classification of the class or classes of workers for prior years. The taxpayer must certify as part of the VCSP Temporary Eligibility Expansion closing agreement with the IRS that it has furnished to the workers and has electronically filed all required Forms 1099 for the previous three years with respect to the workers being reclassified.

Under the VCSP Temporary Eligibility Expansion, the penalty for unfiled Forms 1099 is graduated, based on the number of required Forms 1099 that were not filed for the previous three years with respect to the workers being reclassified, up to a maximum amount. The worksheet provided with this announcement provides further details regarding how the penalty is calculated.
V. APPLICATION PROCESS

Eligible taxpayers who wish to participate in the VCSP Temporary Eligibility Expansion must submit an application on or before June 30, 2013, for participation in the program using Form 8952, Application for Voluntary Classification Settlement Program (VCSP). However, taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion should write “VCSP Temporary Eligibility Expansion” at the top of Form 8952.

Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must complete all parts of Form 8952, with the following modifications:

(1) Taxpayers should put a line through Part V, Line A3, to indicate that Taxpayer has not satisfied all Form 1099 requirements for each of the workers for the 3 preceding calendar years ending before the date of the application; and

(2) Taxpayers should not complete Part IV, Payment Calculation, of Form 8952. Instead, taxpayers should use the worksheet provided in this announcement to calculate their payment under the VCSP Temporary Eligibility Expansion. Taxpayers should attach the completed worksheet provided in this announcement to Form 8952.

Information about the VCSP Temporary Eligibility Expansion and the application is available on http://www.irs.gov. Along with the application, the taxpayer may provide the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848). The IRS will contact the taxpayer or authorized representative with instructions on how to electronically file Forms 1099 once it has reviewed the application and verified that the taxpayer is otherwise eligible. The IRS retains discretion whether to accept a taxpayer’s application for the VCSP Temporary Eligibility Expansion. The taxpayer must contact the IRS to provide confirmation that the taxpayer has electronically filed Forms 1099 and furnished the forms to the workers being reclassified. The IRS will then contact the taxpayer to complete the process. Taxpayers whose application has been accepted enter into a closing agreement with the IRS to finalize the terms of the VCSP Temporary Eligibility Expansion and must simultaneously make full and complete payment of any amount due under the closing agreement.
VI. DRAFTING INFORMATION

The principal drafter of this announcement is Ligeia M. Donis of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this announcement, contact Ligeia Donis at 202-622-6040 (not a toll-free call).

Internal Revenue Bulletin: 2012-51
December 17, 2012
Announcement 2012-46
Voluntary Classification Settlement Program — Temporary Eligibility Expansion

Table of Contents

I. PURPOSE
II. BACKGROUND
III. ELIGIBILITY
IV. EFFECT OF THE VCSP TEMPORARY ELIGIBILITY EXPANSION
V. APPLICATION PROCESS
VI. DRAFTING INFORMATION

This document provides notice and information regarding a temporary expansion of eligibility for the Voluntary Classification Settlement Program (VCSP) that will be available through June 30, 2013. The temporary eligibility expansion makes a modified VCSP available to taxpayers who would otherwise be eligible for the current VCSP but have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified. Eligible taxpayers that take advantage of this limited, temporary eligibility expansion agree to prospectively treat workers as employees and will receive partial relief from federal employment taxes.
I. PURPOSE

The Internal Revenue Service (IRS) has developed a new, temporary initiative to permit taxpayers who are otherwise eligible for the VCSP, but have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified, to apply for a modified version of the VCSP, the VCSP Temporary Eligibility Expansion. The VCSP Temporary Eligibility Expansion is available through June 30, 2013.

Like the VCSP, the VCSP Temporary Eligibility Expansion permits eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes and obtain relief similar to that obtained through the current Classification Settlement Program (CSP). The VCSP Temporary Eligibility Expansion is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. Payment under the VCSP Temporary Eligibility Expansion is higher than the payment under the VCSP, but the benefits are otherwise the same for taxpayers that want to voluntarily reclassify their workers but have not filed all required Forms 1099 for those workers. To participate, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP Temporary Eligibility Expansion, and enter into a closing agreement with the IRS.
II. BACKGROUND

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. For taxpayers under IRS examination, the current CSP is available to resolve federal employment tax issues related to worker misclassification if certain criteria are met. The CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows businesses and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.

In order to facilitate voluntary resolution of worker classification issues and achieve the benefits of increased tax compliance and certainty for taxpayers, workers, and the government, the IRS determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes. Accordingly, the VCSP was established on September 21, 2011, through Announcement 2011-64, 2011-41 I.R.B. 503. In response to feedback from taxpayers and taxpayer representatives, the VCSP is modified under Announcement 2012-45, 2012-51 I.R.B. , to (1) permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP; (2) clarify the current eligibility requirement that a taxpayer that is a member of an affiliated group within the meaning of section 1504(a) is not eligible to participate in the VCSP if any member of the affiliated group is under employment tax audit; (3) clarify that a taxpayer is not eligible to participate in the VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or the Department of Labor; and (4) eliminate the requirement that a taxpayer agree to extend the period of limitations on assessment of employment taxes as part of the VCSP closing agreement with the IRS.

To be eligible under the VCSP, a taxpayer must meet certain requirements, including having consistently treated the workers as nonemployees and having filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years with respect to the workers to be reclassified. Taxpayers that do not qualify under the VCSP because they have not filed all required Forms 1099 for the previous three years requested a similar program. The IRS decided to provide this limited, temporary eligibility expansion through June 30, 2013, to permit taxpayers that have not filed all required Forms 1099 to agree to voluntarily reclassify their workers prospectively and file and furnish any required Forms 1099 with respect to the workers being reclassified for the previous three years.
III. ELIGIBILITY

The VCSP Temporary Eligibility Expansion is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as nonemployees. The taxpayer cannot currently be under employment tax audit by the IRS. A taxpayer that is a member of an affiliated group within the meaning of section 1504(a) is considered to be under employment tax audit for purposes of the VCSP Temporary Eligibility Expansion if any member of the affiliated group is under employment tax audit. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the class or classes of workers by the Department of Labor or by a state government agency.

A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the class or classes of workers is eligible for the VCSP Temporary Eligibility Expansion if the taxpayer has complied with the results of that audit and is not currently contesting the classification in court.

In addition, in order to be eligible to participate in the VCSP Temporary Eligibility Expansion, a taxpayer must furnish to the workers and electronically file all required Forms 1099, consistent with the nonemployee treatment, with respect to the workers being reclassified for the previous three years prior to executing the VCSP Temporary Eligibility Expansion closing agreement with the IRS. Taxpayers must electronically file such Forms 1099 in accordance with IRS instructions, which will be provided once the IRS has reviewed the application and verified that the taxpayer is otherwise eligible for the VCSP Temporary Eligibility Expansion, as indicated in Section V, Application Process.

Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must submit an application, as indicated below in Section V, Application Process, on or before June 30, 2013.
IV. EFFECT OF THE VCSP TEMPORARY ELIGIBILITY EXPANSION

A taxpayer who participates in the VCSP Temporary Eligibility Expansion agrees to prospectively treat the class or classes of workers identified in the application as employees for future tax periods. In exchange, the taxpayer pays 25 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year if those workers were classified as employees for such year, determined under the reduced rates of section 3509(b); pays a reduced penalty, as discussed below, for unfiled Forms 1099 for the previous three years with respect to the workers being reclassified; is not liable for any interest and penalties on the liability; and is not subject to an employment tax audit with respect to the worker classification of the class or classes of workers for prior years. The taxpayer must certify as part of the VCSP Temporary Eligibility Expansion closing agreement with the IRS that it has furnished to the workers and has electronically filed all required Forms 1099 for the previous three years with respect to the workers being reclassified.

Under the VCSP Temporary Eligibility Expansion, the penalty for unfiled Forms 1099 is graduated, based on the number of required Forms 1099 that were not filed for the previous three years with respect to the workers being reclassified, up to a maximum amount. The worksheet provided with this announcement provides further details regarding how the penalty is calculated.
V. APPLICATION PROCESS

Eligible taxpayers who wish to participate in the VCSP Temporary Eligibility Expansion must submit an application on or before June 30, 2013, for participation in the program using Form 8952, Application for Voluntary Classification Settlement Program (VCSP). However, taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion should write “VCSP Temporary Eligibility Expansion” at the top of Form 8952.

Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must complete all parts of Form 8952, with the following modifications:

(1) Taxpayers should put a line through Part V, Line A3, to indicate that Taxpayer has not satisfied all Form 1099 requirements for each of the workers for the 3 preceding calendar years ending before the date of the application; and

(2) Taxpayers should not complete Part IV, Payment Calculation, of Form 8952. Instead, taxpayers should use the worksheet provided in this announcement to calculate their payment under the VCSP Temporary Eligibility Expansion. Taxpayers should attach the completed worksheet provided in this announcement to Form 8952.

Information about the VCSP Temporary Eligibility Expansion and the application is available on http://www.irs.gov. Along with the application, the taxpayer may provide the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848). The IRS will contact the taxpayer or authorized representative with instructions on how to electronically file Forms 1099 once it has reviewed the application and verified that the taxpayer is otherwise eligible. The IRS retains discretion whether to accept a taxpayer’s application for the VCSP Temporary Eligibility Expansion. The taxpayer must contact the IRS to provide confirmation that the taxpayer has electronically filed Forms 1099 and furnished the forms to the workers being reclassified. The IRS will then contact the taxpayer to complete the process. Taxpayers whose application has been accepted enter into a closing agreement with the IRS to finalize the terms of the VCSP Temporary Eligibility Expansion and must simultaneously make full and complete payment of any amount due under the closing agreement.
VI. DRAFTING INFORMATION

The principal drafter of this announcement is Ligeia M. Donis of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this announcement, contact Ligeia Donis at 202-622-6040 (not a toll-free call).

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 http://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.

Who Should File a 2012 Tax Return?

If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

You can find income tax filing requirements on IRS.gov. The instructions for Forms 1040, 1040A or 1040EZ also list filing requirements. The Interactive Tax Assistant tool, also available on the IRS website, is another helpful resource. The ITA tool answers many of your tax law questions including whether you need to file a return.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

1. Federal Income Tax Withheld. If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund. File a return to claim any excess tax you paid during the year.

2. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891 dollars. You can’t get the credit unless you file a return and claim it. Use the EITC Assistant to find out if you qualify.

3. Additional Child Tax Credit. If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit.

4. American Opportunity Credit. If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit.

5. Health Coverage Tax Credit. If you’re receiving Trade Adjustment Assistance, Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. If you’re eligible, you can receive a 72.5 percent tax credit on payments you made for qualified health insurance premiums.
Want more information about filing requirements and tax credits? Visit IRS.gov.

Additional IRS Resources:
• Interactive Tax Assistant
• EITC Assistant
• Publication 596, Earned Income Credit
• Schedule 8812, Child Tax Credit
• Publication 972, Child Tax Credit
• Form 8863, Education Credits
• Publication 970, Tax Benefits for Education
• Health Coverage Tax Credit
IRS YouTube Videos:
• Do I Have To File a Tax Return? – English | Spanish | ASL
• Education Tax Credits and Deductions – English | Spanish | ASL
IRS Podcasts:
• Education Tax Credits and Deductions – English | Spanish

Electronic Health Records Incentive Payments

The American Recovery and Reinvestment Act of 2009 (ARRA) authorizes the Centers for Medicare and Medicaid Services (CMS) to make incentive payments to eligible professionals and hospitals that adopt, implement, upgrade or demonstrate “meaningful use” of certified electronic health record (EHR) technology to improve patient care. The funds for these incentive payments may be administered through the state’s Medicaid agency or directly from CMS via a Medicare contractor.

If the state agency or CMS makes incentive payments of $600 or more to an eligible professional or hospital, they are responsible for reporting such payments to the recipients on a Form 1099-MISC by January 31 of the next year. Therefore, if a state agency or CMS made payments of $600 or more in 2012, they should issue Form 1099-MISC to the recipients by January 31, 2013.
Professionals and hospitals should not consider EHR incentive payments to be reimbursements of expenses incurred in establishing an EHR system; instead, the recipient of the payments should consider the payments to be includible in gross income.

An eligible provider receiving an EHR incentive payment may be required to give the payment to the provider’s practice or group and not be allowed to keep it. In this situation, the eligible provider is not required to include the payment in gross income if the provider (1) is receiving the payment as an agent or conduit of the practice or group, and (2) turns the payment over to the practice or group as required. The state agency or CMS should send the Form 1099-MISC to the provider regardless of whether the funds are assigned or transferred to the provider’s practice group, or retained by the provider. The eligible provider, not the state agency or CMS, would bear the information reporting obligation, if any, for payments made to the provider’s practice group.

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.

Proposition 30 California Tax Increase –Tax Penalty Waiver.

The Franchise Tax Board has announced that taxpayers affected by the retroactive personal income tax increase (Proposition 30), may pay the amount due with their 2012 tax return.   Taxpayers subject to underpayment of estimated tax penalties may request relief by completing Form 5808 Underpayment of Estimated Taxes by Individual and Fiduciaries and completing Part 1, question 1 with the explanation that the underpayment is due to Proposition 30.

AMERICAN TAXPAYER RELIEF ACT-SUMMARY FOR KATHERMAN KITTS CLIENTS READING PLEASURE

Yesterday, the President signed the American Taxpayer Relief Act, which was passed on New Year’s Day. Here is brief summary of selected portions of it, for your review. We can help answer any questions that you may have.

Individual Tax Rates
The Act preserves and permanently extends the Bush-era income tax cuts except for single individuals with taxable income above $400,000; married couples filing joint returns with taxable income above $450,000; and heads of household with taxable income above $425,000. Income above these thresholds will be taxed at a 39.6 percent rate, effective January 1, 2013. The $400,000/$450,000/$425,000 thresholds will be adjusted for inflation after 2013.
The new law, however, does not extend the payroll tax holiday. Effective January 1, 2013, the employee-share of Social Security tax withholding increased from 4.2% to 6.2% (its rate before the payroll tax holiday).

Capital Gains and Dividend Tax Rate
Effective January 1, 2013, the maximum tax rate on qualified capital gains and dividends rises from 15 to 20 percent for taxpayers whose taxable incomes exceed the thresholds set for the 39.6 percent rate (the $400,000/$450,000/$425,000 thresholds discussed above). The maximum tax rate for all other taxpayers remains at 15 percent; and moreover, a zero-percent rate will continue to apply to qualified capital gains and dividends to the extent income falls below the top of the 15- percent tax bracket. Note – The 2010 Affordable Care Act imposes a 3.8% Medicare tax on interest, dividends, capital gains, and other passive income, starting in 2013, and it applies at taxable income over $200,000 for single filers and over $250,000 for joint filers.

Estate and Gift Tax
Federal transfer taxes (estate, gift and generation-skipping transfer (GST) taxes) seem to have been in a constant state of flux in recent years. The Act provides some certainty. Effective January 1, 2013, the maximum estate, gift and GST tax rate is generally 40 percent, which reflects an increase from 35 percent for 2012. The lifetime exclusion amount for estate and gift taxes is unchanged for 2013 and subsequent years at $5 million (adjusted for inflation). The GST exemption amount for 2013 and beyond is also $5 million (adjusted for inflation). The new law also makes permanent portability and some enhancements made in previous tax laws.

Other Act Elements Affecting Individuals
• AMT (Alternative Minimum Tax) – Higher exemptions are made permanent, and indexed for inflation
• IRA distributions to charitable organizations, (for those over age 70) – restored through 2013
• Exclusion for cancellation of debt on principal residence – extended through 2013
• Reduction of itemized deductions for incomes over certain levels, (which was not in place since 2010) – will apply starting in 2013

Business Tax Provisions
Code Sec. 179 business equipment expensing. In recent years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the Code Sec. 179 dollar and investment limits were $500,000 and $2 million, respectively. [This means that you can expense up to $500,000 of equipment or software purchased, so long as you don’t spend more than $2 million in total. Expenditures over the $2 million level reduces the allowable expense amount dollar-for-dollar.] The Act restores the dollar and investment limits for 2012 and 2013 to their 2011 amounts ($500,000 and $2 million) and adjusts those amounts for inflation. However, this increase is temporary. The Code Sec. 179 dollar and investment limits are scheduled, unless changed by Congress, to decrease to $25,000 and $200,000, respectively, after 2013. The new law also provides that off-the-shelf computer software qualifies as eligible property for Code Sec. 179 expensing. The software must be placed in service in a tax year beginning before 2014. Additionally, the Act allows taxpayers to treat up to $250,000 of qualified leasehold and retail improvement property as well as qualified restaurant property, as eligible for Code Sec. 179 expensing.

Bonus depreciation. Bonus depreciation of business equipment is one of the most important tax benefits available to businesses, large or small. In recent years, bonus depreciation has reached 100 percent, which gave taxpayers the opportunity to write off 100 percent of qualifying asset purchases immediately. For 2012, bonus depreciation remained available but was reduced to 50 percent. The Act extends 50 percent bonus depreciation through 2013. The Act also provides that a taxpayer otherwise eligible for additional first-year depreciation may elect to claim additional research or minimum tax credits in lieu of claiming depreciation for qualified property.

While not quite as attractive as 100 percent bonus depreciation, 50 percent bonus depreciation is valuable. For example, a $100,000 piece of equipment with a five-year MACRS life would qualify for a $55,000 write-off: $50,000 in bonus depreciation plus 20 percent of the remaining $50,000 in basis as “regular” depreciation, with the half-year convention applied in the first and last year.

Bonus depreciation also relates to the passenger vehicle depreciation dollar limits under Code Sec. 280F. This provision imposes dollar limitations on the depreciation deduction for the year in which a taxpayer places a passenger automobile/truck in service within a business and for each succeeding year. Because of the new law, the first-year depreciation cap for passenger automobile/truck placed in service in 2013 is increased by $8,000.

Bonus depreciation, unlike Code Sec. 179 expensing, is not capped at a dollar threshold. However, only new property qualifies for bonus depreciation. Code Sec. 179 expensing, in contrast, can be claimed for both new and used property and qualifying property may be expensed at 100 percent.

Research Tax Credit. The research tax credit was restored for 2012 and extended through 2013.

If you have any questions, please contact us.

US Mismanages Monetary Assets and Natural Resources – Indian Tribes Win $1 Billion Settlement

Very interesting read – US Government and Indian Tribal Trust Cases – reprinted here Notice 2012-60

Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases

PURPOSE

This notice provides guidance concerning the federal income tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes.

BACKGROUND

The United States has entered into settlement agreements with the federally recognized Indian tribes listed in the Appendix to this notice, settling litigation in which the tribes allege that the Department of the Interior and the Department of the Treasury mismanaged monetary assets and natural resources the United States holds in trust for the benefit of the tribes (“Tribal Trust cases”). Upon receiving the settlement proceeds, the tribes will dismiss their claims with prejudice. See Press Release, U.S. Department of Justice, Attorney General Holder and Secretary Salazar Announce $1 Billion Settlement of Tribal Trust Accounting and Management Lawsuits Filed by More Than 40 Tribes (April 11, 2012) at http://www.justice.gov/opa/pr/2012/April/12-ag-460.html. The United States foresees the possibility of future substantially similar settlements of substantially similar claims brought by other federally recognized Indian tribes.

Most of the Indian tribes that have reached Tribal Trust case settlements with the United States have directed that the settlement proceeds be transferred to accounts at private banks or other third-party institutions, where the proceeds will be invested until the tribes use the funds for various purposes, which may include making per capita payments to their members. Other Indian tribes have directed that all or part of the settlement proceeds be paid into a trust account established or maintained by the Secretary of the Interior, through the Office of the Special Trustee for American Indians, for the benefit of the tribes, until the tribes provide instructions for the disposition of the funds, which may include making per capita payments to their members.

Although agreeing to settlements, the United States admits no liability in the Tribal Trust case settlements and the government has no fiduciary responsibilities over the Tribal Trust case settlement proceeds that the tribes receive and that are deposited into accounts at private banks or other third-party institutions.

CONSULTATION

Several tribes and other affiliated organizations requested direct consultation on the income tax treatment of per capita payments from the Tribal Trust case settlements. In response to these requests and in the spirit of Executive Order 13175, direct consultation and communication occurred. These consultations and conversations were extremely useful in preparing this notice.

APPLICABLE PROVISIONS OF LAW

Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived. Under § 61, Congress intends to tax all gains and undeniable accessions to wealth, clearly realized, over which taxpayers have complete dominion. Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207. Indians are citizens subject to the payment of income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956), 1956-1 C.B. 605.

The Per Capita Act, Pub. L. No. 98-64, 97 Stat. 365, 25 U.S.C. §§ 117a through 117c, provides authority to Indian tribes to make per capita payments to Indians out of tribal trust revenue. Under 25 U.S.C. § 117a, funds held in trust by the Secretary of the Interior for an Indian tribe that are to be distributed per capita to members of that tribe may be distributed by either the Secretary of the Interior or, at the request of the governing body of the tribe and subject to the approval of the Secretary of the Interior, the tribe.

The Indian Tribal Judgment Funds Use or Distribution Act, 25 U.S.C. §§ 1401 through 1408, concerns the distribution of certain judgment funds to Indian tribes. Under 25 U.S.C. § 117b(a), funds distributed under 25 U.S.C. § 117a are subject to the provisions of 25 U.S.C. § 1407. Under 25 U.S.C. § 1407, the funds described in that section, and all interest and investment income accrued on the funds while held in trust, are not subject to federal income taxes. See also H.R. Rep. No. 98-230 at 3 (1983), which provides that per capita distributions of tribal trust revenue “shall be subject to the provisions of [25 U.S.C. § 1407] with respect to tax exemptions.”

To determine the federal income tax treatment of per capita payments from Tribal Trust case settlement proceeds, “the test is not whether the action was one in tort or contract, but rather the question to be asked is ‘In lieu of what were the damages awarded?’” See Raytheon Production Corp. v. Commissioner, 144 F.2d 110, 113 (1st Cir. 1944), aff’g 1 T.C. 952 (1943). The fact that a suit ends in a compromise settlement does not change the nature of the recovery; the determining factor is the nature of the underlying claim. Raytheon Production Corp. at 114. Therefore, although the United States admits no liability in the Tribal Trust cases, Raytheon Production Corp. requires an examination of the underlying claims asserted by the tribes. The Tribal Trust case settlements described in this notice resolve claims, in relevant part, that the Department of the Interior and the Department of the Treasury mismanaged trust accounts, lands, and natural resources. The tribes assert that, absent this mismanagement of their trust funds and resources, their government-administered trust fund accounts would have substantially larger balances. See 25 C.F.R. §§ 115.002 and 115.702 (which define the trust fund accounts maintained and held by the Secretary of the Interior for federally recognized tribes and the types of payments that must be accepted into the trust account, which include those resulting from use of trust lands or restricted fee lands or trust resources when paid directly to the Secretary of the Interior on behalf of the tribal account holder). The settlement proceeds from the Tribal Trust cases must be viewed as being in lieu of amounts that would have been held in a trust fund account for the tribe that is maintained by the Secretary of the Interior. Consequently, for federal income tax purposes, per capita payments that an Indian tribe makes from the tribe’s Tribal Trust case settlement proceeds are treated the same as per capita payments from funds held in trust by the Secretary of the Interior under 25 U.S.C. § 117a. See Raytheon Production Corp. at 113-114; see also 25 U.S.C. § 1407 and H.R. Rep. No. 98-230 at 3 (1983).

FEDERAL INCOME TAX TREATMENT

Under 25 U.S.C. § 117b(a), per capita payments made from the proceeds of an agreement between the United States and an Indian tribe settling the tribe’s claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior are excluded from the gross income of the members of the tribe receiving the per capita payments. Per capita payments that exceed the amount of the Tribal Trust case settlement proceeds and that are made from an Indian tribe’s private bank account in which the tribe has deposited the settlement proceeds are included in the gross income of the members of the tribe receiving the per capita payments under § 61. For example, if an Indian tribe receives proceeds under a settlement agreement, invests the proceeds in a private bank account that earns interest, and subsequently distributes the entire amount of the bank account as per capita payments, then a member of the tribe excludes from gross income that portion of the member’s per capita payment attributable to the settlement proceeds and must include the remaining portion of the per capita payment in gross income.

LIMITATION

This notice applies only to per capita payments from proceeds of the Tribal Trust case settlements that are described in this notice and that the United States has entered into with the Indian tribes listed in the Appendix to this notice or to proceeds of Tribal Trust case settlements that are subsequently identified as being subject to this notice on the Indian Tribal Governments page on the Internal Revenue Service website, http://www.irs.gov. The federal income tax treatment of other per capita payments made by the Secretary of the Interior or Indian tribes to members of Indian tribes is outside the scope of this notice and may be addressed in future guidance.

DRAFTING INFORMATION

The principal author of this notice is Sheldon Iskow of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information, please contact Mr. Iskow at (202) 622-4920 (not a toll-free call).

Appendix

Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases

1. Assiniboine and Sioux Tribes of the Fort Peck Reservation
2. Bad River Band of Lake Superior Chippewa Indians
3. Blackfeet Tribe of the Blackfeet Indian Reservation
4. Bois Forte Band of Chippewa
5. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria
6. Chippewa Cree Tribe of the Rocky Boy’s Reservation
7. Coeur d’Alene Tribe
8. Confederated Salish and Kootenai Tribes
9. Confederated Tribes of Siletz Indians
10. Confederated Tribes of the Colville Reservation
11. Confederated Tribes of the Goshute Reservation
12. Crow Creek Sioux Tribe
13. Eastern Shawnee Tribe of Oklahoma
14. Hualapai Indian Tribe
15. Iowa Tribe of Kansas and Nebraska
16. Kaibab Band of Paiute Indians of Arizona
17. Kickapoo Tribe of Kansas
18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians
19. Lac du Flambeau Band of Lake Superior Chippewa Indians
20. Leech Lake Band of Ojibwe
21. Lower Brule Sioux Tribe
22. Makah Indian Tribe of the Makah Reservation
23. Mescalero Apache Tribe
24. Minnesota Chippewa Tribe
25. Nez Perce Tribe
26. Nooksack Indian Tribe
27. Northern Cheyenne Tribe of Indians
28. Omaha Tribe o Nebraska
29. Passamaquoddy Tribe of Maine
30. Pawnee Nation
31. Prairie Band of Potawatomi Nation
32. Pueblo of Zia
33. Quechan Tribe of the Fort Yuma Reservation
34. Red Cliff Band of Lake Superior Chippewa Indians
35. Rincon Luiseño Band of Indians
36. Rosebud Sioux Tribe
37. Round Valley Indian Tribes
38. Salt River Pima-Maricopa Indian Community
39. Santee Sioux Tribe of Nebraska
40. Sault Ste. Marie Tribe
41. Shoshone-Bannock Tribes of the Fort Hall Reservation
42. Soboba Band of Luiseno Indians
43. Spirit Lake Dakotah Nation
44. Spokane Tribe of Indians
45. Standing Rock Sioux Tribe
46. Stillaguamish Tribe of Indians
47. Summit Lake Paiute Tribe
48. Swinomish Indian Tribal Community
49. Te-Moak Tribe of Western Shoshone Indians
50. Tohono O’odham Nation
51. Tulalip Tribes
52. Tule River Indian Tribe
53. Ute Indian Tribe of the Uintah and Ouray Reservation
54. Ute Mountain Ute Tribe
55. Winnebago Tribe of Nebraska

IRS Summertime Tax Tip 2012-04: Special Tax Benefits for Armed Forces Personnel

Special Tax Benefits for Armed Forces Personnel

Military personnel and their families face unique life challenges with their duties, expenses and transitions. The IRS wants active members of the U.S. Armed Forces to be aware of all the special tax benefits that are available to them.

Here are 10 of those special tax benefits:

1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.

2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received. You can also elect to include your nontaxable combat pay in your “earned income” for purposes of claiming the Earned Income Tax Credit.

3. Extension of Deadlines The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.

4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.

5. Joint Returns Generally, joint income tax returns must be signed by both spouses. However, when one spouse is unavailable due to military duty, a power of attorney may be used to file a joint return.

6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.

7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

9. Tax Help Most military installations offer free tax filing and preparation assistance during and/or after the tax filing season.

10. Tax Information IRS Publication 3, Armed Forces’ Tax Guide, is an excellent resource as it summarizes many important military-related tax topics. Publication 3 can be downloaded from IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).

Link:

IRS Publication 3, Armed Forces’ Tax Guide (PDF)

Expanded Adoption Tax Credit Still Available for Extension Filers

If you adopted a child last year and requested an extension of time to file your 2011 taxes, you may be able to claim the expanded adoption credit on your federal tax return. The Affordable Care Act temporarily increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.

Here are eight things to know about this valuable tax credit:

1. The adoption credit for tax year 2011 can be as much as $13,360 for each effort to adopt an eligible child. You may qualify for the credit if you adopted or attempted to adopt a child in 2010 or 2011 and paid qualified expenses relating to the adoption.

2. You may be able to claim the credit even if the adoption does not become final. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.

3. The credit for qualified adoption expenses is subject to income limitations, and may be reduced or eliminated depending on your income.

4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child who is under 18 years old, or physically or mentally incapable of caring for himself or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

5. To claim the credit, you must file a paper tax return and Form 8839, Qualified Adoption Expenses, and attach all supporting documents to your return. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children. You can use IRS Free File to prepare your return, but it must be printed and mailed to the IRS. Failure to include required documents will delay your refund.

6. If you filed your tax returns for 2010 or 2011 and did not claim an allowable adoption credit, you can file an amended return to get a refund. Use Form 1040X, Amended U.S. Individual Income Tax Return, along with Form 8839 and the required documents to claim the credit. You generally must file Form 1040X to claim a refund within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

7. The IRS is committed to processing adoption credit claims quickly, but must also safeguard against improper claims by ensuring the standards for receiving the credit are met. If your return is selected for review, please keep in mind that it is necessary for the IRS to verify that the legal criteria are met before the credit can be paid. If you are owed a refund beyond the adoption credit, you will still receive that part of your refund while the review is being conducted.

8. The expanded adoption credit provisions available in 2010 and 2011 do not apply in later years. In 2012 the maximum credit decreases to $12,650 per child and the credit is no longer refundable. A nonrefundable credit can reduce your tax, but any excess is not refunded to you.

For more information see the ‘Adoption Benefits FAQs’ page available at IRS.gov or the Form 8839 instructions. The forms and instructions can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

Adoption Benefits FAQs
Form 8839, Qualified Adoption Expenses (PDF)
Instructions for Form 8839 (PDF)
Publication 4903, Affordable Care Act Expands Adoption Tax Credit Flyer (PDF)
Form 1040X, Amended Federal Income Tax Return (PDF)
Instructions for Form 1040X (PDF)

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