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IRS Patrol – New: Surviving Spouses to Benefit from Portability Election; Estate Tax Return Required to Make this Choice For Some, Form 706 Due as Early as Oct. 3

Kilkenny Castle

Katherman Kitts & Co. LLP Protect Your Castle

By Stacie Kitts

Folks – here is info on the new portability election eliminating the need for spouses to retitled property and create trusts solely to take advantage of each spouses exclusion amount.  Read on…..

IR-2011-97, Sept. 29, 2011

WASHINGTON — The Internal Revenue Service today reminded estates of married individuals dying after 2010 that they must file an estate tax return to pass along their unused estate & gift tax exclusion amount to their surviving spouse.

Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted last December, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.

The IRS expects that most estates of people who are married will want to make the portability election, including people who are not required to file an estate tax return for some other reason. The only way to make the election is by properly and timely filing an estate tax return on Form 706. There are no special boxes to check or statements needed to make the election.

The first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are due as early as Monday, Oct. 3, 2011. This is because the estate tax return is due nine months after the date of death. Estates unable to meet this deadline can request an automatic six-month filing extension by filing Form 4768. The IRS emphasized that estates of those who died before 2011 are not eligible to make this election.

The IRS plans to issue regulations providing further guidance on this election and welcomes public comment on a number of issues. There are three ways to submit comments:

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-82” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-82), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR (Notice 2011-82), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline is Oct. 31, 2011. Further details are in Notice 2011-82, posted today on IRS.gov.

NOL Revenue Procedure Issued under the WHBA Act of 2009

WASHINGTON — Most businesses may use losses incurred during the economic downturn to reduce income from prior tax years, under a revenue procedure issued [Friday] by the Internal Revenue Service.

The relief provided under the Worker, Homeownership, and Business Assistance Act of 2009 differs from similar relief issued earlier this year in that the previous relief was limited to small businesses.

The current relief is applicable to any taxpayer with business losses, except those that received payments under the Troubled Asset Relief Program. The relief also applies to a loss from operations of a life insurance company.

Taxpayers under the procedure may elect to carry back a net operating loss (NOL) for a period of three, four or five years, or a loss from operations for four or five years, to offset taxable income in those preceding taxable years. An NOL or loss from operations carried back five years may offset no more than 50 percent of a taxpayer’s taxable income in that fifth preceding year. This limitation does not apply to the fourth or third preceding year.

The procedure applies to taxpayers that incurred an NOL or a loss from operations for a taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010.

Revenue Procedure 2009-52 provides guidance under § 13 of the Worker, Homeownership, and Business Assistance Act of 2009, which allows taxpayers to elect a 3, 4, or 5-year net operating loss (NOL) carryback instead of a normally 2-year carryback. The election applies to an applicable NOL, which is an NOL for a taxable year ending after December 31, 2007, and beginning before January 1, 2010. The revenue procedure tells taxpayers the time and manner for making the election if the taxpayer (1) has not claimed a deduction for an applicable NOL; (2) previously claimed a deduction for an applicable NOL; or (3) previously filed an election to forgo the NOL carryback.

Revenue Procedure 2009-52 will be in IRB 2009-49, dated December 7, 2009.

More on the Worker, Homeownership, and Business Assistance Act of 2009

Here is an expanded outline on how the Worker, Homeownership, and Business Assistance Act of 2009 may affect some businesses (this outline does not include all the provisions of the act). Click here to read the bill as passed by both the House and the Senate.

  1. Allow for a 5 year carryback of 2009 NOLs
    1.  
        i. Small business will be exempt from the 1 election rule. Thus small business claiming the 5 year carryback for 2008 losses can still elect 5 year carryback for 2009 losses
    2. a. Removes the small business requirement
      b. Offset 50% of taxable income in 5th prior year
      c. Offset 100% of taxable income in 4th thru 1st prior years
      d. Only 1 election allowed (either for fiscal years beginning in 2008 or fiscal years beginning in 2009)

  2. Homebuyer credit
    1.  
        i. If using binding contract rule – must close by July 1, 2010
    2. a. Extended for purchases (binding contracts entered into by) through 4/30/2010b. Recapture waived for 2009 purchases
      c. Credit = lesser of 10% of purchase price or $8,000.
      d. Credit phases out for modified agi between $125k and $145k ($225k and $245k for married joint returns.)
      e. Can elect to treat 2009 purchases as if made in 2008 and claim credit on 2008 return
      f. Need not be a new buyer

        i. Existing homeowners living in current residence for at least 5 consecutive years during 8 year period ending on date of purchase are eligible for credit
        ii. Must live in new home for at least 3 years
        iii. Credit reduced to $6,500

      g. Limitations

        i. Purchase price must be < $800,000 ii. Skip buying a house for the kids – no credit allowed if can be claimed as a dependent of another taxpayer iii. No credit for taxpayers under 18 1. Emancipated minors out of luck unless one is at least 18

      h. MUST attach copy of settlement statement to the return

  3. Penalty for failure to file partnership or s corp returns increased to $195 per partner/shareholder per month beginning with 2010 returns.
  4. Electronic filing mandate
      a. Must use efile if preparing at least 10 individual income tax returns
      b. Individual income tax returns means returns for individuals, estates & trusts
  5. Large Corporation estimated tax payments increased to 100.58% for payments due in July, August or Sept.
      a. Large corporation is a corporation with at least $1b in assets at the end of the preceding tax year.

Expanded NOL Election Deadline September 15 for Corporations – Don’t Miss Out

WASHINGTON — Eligible taxpayers must act soon if they want to take advantage of the expanded business loss carryback option included in this year’s Recovery law. According to the Internal Revenue Service, eligible calendar-year corporations have until Sept. 15, and eligible individuals have until Oct. 15 to choose this special option.

This carryback provision offers small businesses that lost money in 2008 an excellent way to quickly get some much needed cash if they were profitable in previous years. This option is only available for a limited time, so small businesses should consider it carefully and act before it’s too late.

Under the American Recovery and Reinvestment Act (ARRA), enacted in February, many small businesses that had expenses exceeding their income for 2008 can choose to carry the resulting loss back for up to five years, instead of the usual two. This means that a business that had a net operating loss (NOL) in 2008 could carry that loss as far back as tax-year 2003, rather than the usual 2006. Not only could this mean a special tax refund, but the refund could be larger, because the loss is being spread over as many as five tax years, rather than just two.

This option may be particularly helpful to any eligible small business with a large loss in 2008. A small business that chooses this option can benefit by:

Offsetting the loss against income earned in up to five prior tax years,
Getting a refund of taxes paid up to five years ago,

Using up part or all of the loss now, rather than waiting to claim it on future tax returns.

Under ARRA, eligible taxpayers can choose to carry back a NOL arising in a taxable year beginning or ending in 2008 for three, four or five years instead of two. Eligible taxpayers are eligible small businesses (ESB) that have no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. This includes a sole proprietor that qualifies as an ESB, an individual partner in a partnership that qualifies as an ESB and a shareholder in an S corporation that qualifies as an ESB. This choice may be made for only one tax year.

Taxpayers must choose this special carryback by either:

Attaching a statement to an income tax return for the tax year that begins or ends in 2008 or,

Claiming a refund on Form 1045, Application for Tentative Refund or Form 1139, Corporation Application for Tentative Refund, or on an amended return for the tax year to which the NOL is being carried back.

Most taxpayers still have time to choose the special carryback and get a refund. A calendar-year corporation that qualifies as an ESB must make this choice by Sept. 15, 2009. For individuals, the deadline is Oct. 15, 2009. Deadlines vary for fiscal-year taxpayers, depending upon when their fiscal year ends and whether they are making the choice for the tax year that ends or begins in 2008.

A calendar-year taxpayer that chooses the special carryback by attaching a statement to the income tax return has until December 31, 2009, to claim the refund on Form 1045 or 1139, or 3 years after the due date (including extensions) for filing the 2008 income tax return to claim a refund on an amended return.

These forms, along with answers to frequently-asked questions about this special carryback, and other details can be found on IRS.gov
Related Items:
Net Operating Loss Carryback

Small Businesses – Don’t Miss Out on Your Expanded Refund Claim. Time Is Running Out!

WASHINGTON — Time is running out for many small businesses wishing to take advantage of the expanded business loss carryback option included in this year’s recovery law, the Internal Revenue Service said today. Eligible individuals have until Oct. 15 to choose this expanded carryback option. Eligible calendar-year corporations have until Sept. 15.

This carryback provision offers small businesses that lost money in 2008 an excellent way to quickly get some much needed cash if they were profitable in previous years. This option is only available for a limited time, so small businesses should consider it carefully and act before it’s too late.

Under the American Recovery and Reinvestment Act (ARRA), enacted in February, many small businesses that had expenses exceeding their income for 2008 can choose to carry the resulting loss back for up to five years, instead of the usual two. This means that a business that had a net operating loss (NOL) in 2008 could carry that loss as far back as tax-year 2003, rather than the usual 2006. Not only could this mean a special tax refund, but the refund could be larger, because the loss is being spread over as many as five tax years, rather than just two.

This option may be particularly helpful to any eligible small business with a large loss in 2008. A small business that chooses this option can benefit by:
Offsetting the loss against income earned in up to five prior tax years,
Getting a refund of taxes paid up to five years ago,
Using up part or all of the loss now, rather than waiting to claim it on future tax returns.

Under ARRA, eligible taxpayers can choose to carry back a NOL arising in a taxable year beginning or ending in 2008 for three, four or five years instead of two. The option is available for an eligible small business (ESB) that has no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. This choice may be made for only one tax year.

Most taxpayers still have time to choose this special carryback and get a refund. A calendar-year corporation that qualifies as an ESB must file a claim by Sept. 15, 2009. For individuals, the deadline is Oct. 15, 2009. This includes a sole proprietor that qualifies as an ESB, an individual partner in a partnership that qualifies as an ESB and a shareholder in an S corporation that qualifies as an ESB. Deadlines vary for fiscal-year taxpayers, depending upon when their fiscal year ends and whether they are making the choice for the tax year that ends or begins in 2008.

Individuals can accelerate a refund by filing Form 1045, Application for Tentative Refund. Similarly, corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund. Normally, refunds are issued within 45 days. These forms, along with answers to frequently-asked questions about this special carryback, and other details can be found on the IRS Web site.

Small Business Tax Information

IR-2009-51, May 20, 2009
Small Business Week is May 17 to 23, and the Internal Revenue Service urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.
The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.
Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.
The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.
The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.
Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.
Expanded Net Operating Loss Carryback
Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two. For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.
This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15, 2009. For eligible individuals, the deadline is Oct. 15, 2009.
Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139. Details can be found in the instructions for each of these forms, and answers to frequently-asked questions are posted on IRS.gov.
Exclusion of Gain on the Sale of Certain Small Business Stock
The new law provides an extra incentive for individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.
Estimated Tax Requirement Modified
Many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. For details, see Publication 505.
COBRA Credit

Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit. For details, see Form 941. Answers to frequently-asked questions are posted on IRS.gov.

Other ARRA business provisions relate to discharges of certain business indebtedness, the holding period for S corporation built-in gains and acceleration of certain business credits for corporations. Also see Fact Sheet FS-2009-11.

Information Regarding Carrying Back Your 2008 NOL

By Stacie Clifford Kitts, CPA

An eligible small business (a business with 3-years of average annual gross receipts of $15 million or less for the years 2006 -2008) can now carry back its net operating loss as far back as year 5, instead of just 2 years per the old rules.

How to elect a longer carryback period:

A statement attached to the 2008 tax return is required to make the election to receive a longer than 2 year carryback.

The statement must indicate that the taxpayer is adopting the longer carryback period. As well as indicating the number of years the loss will be carried back. Once a taxpayer makes the election, it can not be revoked. (See the specific language for the election included in Revenue Procedure 2009-19) See below updated Revenue Procedure 2009-26 available May 2009

What if the taxpayer forgets to make the election?

If the taxpayer does not attach the proper election statement to the return, a late election can be obtained by using the procedures in Reg. 301.9100-2(b).

How to file for relief – a late election:

Options:
1. File an application for tentative refund (Individuals, Estates & Trusts – Use form 1045; Corporations – use form 1139
2. File an amended return which includes the proper election statement

When to file for relief:

Relief MUST be requested within six months of the due date of the 2008 return (including extensions.)

Here is what to do if a carryback was already filed but the election was not made to use the longer carryback provisions.

If a carryback claim was already filed (on an amended return or via an application for tentative refund) but the taxpayer used the 2-year carryback rule instead of the new 3, 4 or 5 year carryback period, the taxpayer should re-file the carryback claim and include the following language at the top of the form:

“Amended NOL Carryback Election Pursuant to Rev. Proc. 2009-19”

What to do if the NOL carryback was waived but now the taxpayer wants to use the 3, 4 or 5 year carryback period.

If the taxpayer waived the carryback period, the waiver may be revoked by filing an amended return or an application for tenative refund and making the proper election. The taxpayer must include the language at the top of the amended return or application for tentative refund:

“2008 NOL Carryback Election and Revocation of NOL Carryback Waiver Pursuant to Rev. Proc. 2009-19”
Note:

If the election to use the longer carryback period was timely made then the taxpayer has until the end of the next succeeding year to file form 1045 or form 1139 (whichever is applicable.)

If the election was not timely made, then the application for tentative refund must be filed by within six months of the due date of the return (September 15th for calendar year corporations, October 15th for Individuals; Estates & Trusts – Assume September 15th as that is the last date due for an extended return despite that the regulation provides for an automatic 6-month extension.)

References:

IRC §172(b)(1)(F) & (H)
Rev. Proc. 2009-19
Reg. §301.9100-2

Revenue Procedure 2009-26 provides guidance under § 1211 of the American Recovery and Reinvestment Tax Act of 2009 on how a taxpayer that is an eligible small business makes an election to carry back a net operating loss (NOL) for a taxable year ending after 2007, for 3, 4, or 5-years instead of the normal 2-years. Rev. Proc. 2009-26 modifies the election procedures in Rev. Proc. 2009-19, 2009-14 I.R.B. 747. A taxpayer may make the election by attaching a statement to the taxpayer’s original income tax return for the taxable year of the 2008 NOL or by claiming the NOL carryback on the appropriate form (Form 1045, Form 1139, or an amended return).
Revenue Procedure 2009-26 will appear in IRB 2009-19, dated May 11, 2009.
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