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Be Sure To Get Your Refund

Cash

Refund Refund Refund

By Stacie Kitts, CPA

Unbelievably, there are people who never bother to check up on their tax refunds.  Really.

If you move be sure to complete a change of address Form 8822 and check out this info from the IRS

Unclaimed Refunds

Some people earn income and may have taxes withheld from their wages but are not required to file a tax return because they have too little income. In this case, you can claim a refund for the tax that was withheld from your pay. Other workers may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit, but must file a return to claim it.

  • To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
  • If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
  • There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
  • Current and prior year tax forms and instructions are available on the Forms and Publications page of www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
  • Information about the Earned Income Tax Credit and how to claim it is also available on www.irs.gov.

Undeliverable Refunds

Were you expecting a refund check but didn’t get it?

  • Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
  • You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
  • You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
  • If you do not have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.

Lions and Tigers and IRS Notices Oh My

Mug shot of Wesley Snipes.

Open Your Tax Notices

By Stacie Kitts, CPA

Once upon a time, a long time ago, I knew a taxpayer who was afraid to open correspondence from the IRS and accumulated a pile of letters hoping it would all go away.  It didn’t and bad things happened.

If you receive correspondence, open it right away while there is still time to do something about it.

Most of the time correspondence from the IRS is no big deal – you forgot to report some investment income, or you made an estimated tax payment a little later than your were supposed to so you owe some interest.

Honestly, I can’t think of many things you should be worried about when the IRS comes a-callin unless…..

  • You’re a crook and you know it
  • You don’t have advisers or you don’t listen to them
  • Someone was feeding you a line that was to good to be true.  Wesley Snipes is a good example of what not to believe.  Mr Snipes failed to file several years of tax returns based on the advice of shyster tax preparer and is now serving time in jail.

Getting a letter from the IRS informing you of an audit of your tax return can be distressing.  And let’s face it, even if you did everything hunky dory, it can be costly to have someone represent you.

There are things you can do ahead of time to help mitigate the cost of an audit should you win that lottery.

  • Choose the right tax preparer.  Do your research and make sure they are qualified to help you
  • Have your accountant look over your accounting records before the end of each tax year.
  • If you have a business, make sure you give details of your accounting transactions to your preparer. (full general ledger detail)
  • Do some tax planning with your tax professional
  • Keep records of your income and deductions organized and easy to find
  • During the audit process – provide your representative the requested information timely and as organized as possible.  Messy records are not going to help you and will likely drive up the cost of the audit.

The IRS published the following points they think you should know if you receive a notice.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call.
  8. It’s important that you keep copies of any correspondence with your records.

Not All Giving is Deductible

Stacie Kitts, CPA is a partner at Katherman Kitts & Co. LLP

On occasion I run across a taxpayer who “helped” out a family or a friend and wants to deduct the money given as a charitable contribution.  They are always shocked to find out that helping your neighbor isn’t tax deductible unless its through a charitable organization.

Charity is good, but if you want to deduct it, be sure to check out the items below.

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

  1. Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.
  2. You must itemize Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
  3. What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
  4. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
  6. Pledges and payments Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
  7. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
  8. Large donations For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
  9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

For the list of organizations whose tax-exempt status was revoked, visit www.IRS.gov. For general information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

Fixing Your Tax Return If You Messed It Up

By Stacie Kitts, CPA

So you filed your tax return and now you’ve discovered that it’s all wrong or you simply forgot to include something.  Not to fret, there is a way to fix it all up.

Ultimately, the IRS will “fix” it for you if you forget to add a W2 or a Form 1099.  However, if you wait for the IRS to find and correct the error, and you owe additional tax, they are going to charge you interest on the taxes that are due until you pay them.  If you are going to owe a large amount of tax, you should consider filing an amended return and paying what you owe as soon as possible.

The Form you use to amend your return is Form 1040X.  Be sure to read the instructions carefully before you begin to complete this form.

You are required to explain the reason for the amendment and the effect on the tax return – there is a place for this on the form.  Plus, additional attachments will likely be required to be filed with the Form 1040X including updated / corrected Form 1040, the originally filed Form 1040 and associated schedules.

 Here are ten facts from the Internal Revenue Service about amending your federal tax return:

  1. When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
  2. When NOT to amend a return  In some cases, you do not need to amend your tax return.  The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return.  In these instances, do not amend your return. [ya, I don’t completely agree with this – see my comments above]
  3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ.  Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
  4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
  5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B.  There is an area on the back of the form to explain the specific changes and the reason for the change.
  6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
  7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
  8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
  9. When to file Generally, to claim a refund, you must file Form 1040X 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.
  10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

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.

Tax Deductions for Unemployed Persons Looking For Work

By Stacie Kitts, CPA

There are so many people looking for work, I agree it’s was a good idea to remind people that there is a tax deduction waiting for taxpayers.  Although – I think some of the restrictions here are totally bogus as it applies to this economy.  I think the restrictions should be lifted. But that’s just my opinion.

Here are seven things the IRS wants you to know about deducting costs related to your job search.

  1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation. [This restriction irks me. Rather than wasting away on unemployment, any attempt to get a job should be rewarded]
  2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income, up to the amount of your tax benefit in the earlier year.
  3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
  4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
  5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one. [In this economy, I think this restriction is stupid also]
  6. You cannot deduct job search expenses if you are looking for a job for the first time. [Okay well maybe I can go along with this one]
  7. The amount of job search expenses that you can claim on your tax return is limited. You can claim the amount that is more than 2 percent of your adjusted gross income.  You figure your deduction on Schedule A. [bogus – these should not be limited – all attempts to find employment – again in this economy – in my opinion should be fully deductible]

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

IRS Patrol – 2010 Form 8939 is Due Nov. 15; Reporting Option Applies to Many Large Estates

Seal of the Internal Revenue Service

Katherman Kitts & Co. LLP

WASHINGTON – The Internal Revenue Service issued guidance today on the treatment of basis for certain estates of decedents who died in 2010.  The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.  Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due Nov. 15, 2011.

Under the guidance issued today, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to opt out of the estate tax and have the new carryover basis rules apply. The IRS expects to issue Form 8939 and the related instructions early this fall.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

Can’t Pay Your Tax Bill?

Check Writing

Paying Your Tax

If you owe money to the IRS there are many ways to pay, including paying over time.  Here is some helpful info from the IRS tax tips:

  1. Tax bill payments If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest.  If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
  2. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.
  3. Credit card payments You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com), RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com), or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed).
  4. Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash.  To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.
  5. Installment Agreement You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.
  6. Online Payment Agreement If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.
  7. Form 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you received from the IRS.  The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.
  8. Collection Information Statement You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.
  9. User fees If an installment agreement is approved, a one-time user fee will be charged.  The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account.  For eligible individuals with lower incomes, the fee can be reduced to $43.
  10. Check withholding Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine the amount that should be withheld.

For more information about the Fresh Start initiative, installment agreements and other payment options visit www.irs.gov.  IRS Publications 594, The IRS Collection Process, and 966, Electronic Choices to Pay All Your Federal Taxes, also provide additional information regarding your payment options. These publications and Form 9465 can be obtained from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

  • Publication 594, The IRS Collection Process (PDF)
  • Publication 966, Electronic Choices to Pay All Your Federal Taxes (PDF)
  • Form 9465, Installment Agreement (PDF)

Tax Credits to Help Offset College Costs

Barnard College, 1913 (LOC)

Tax Credits To Help Pay For College

Check out these tax credits to help offset the cost of college – presented below by the IRS from their tax tips series.

  1. American Opportunity Credit  This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years – 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
  2. Lifetime Learning Credit  In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
  3. Tuition and Fees Deduction  This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
  4. Student loan interest deduction  Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

IRS Patrol – IRS Announces New Voluntary Worker Classification Settlement Program; Past Payroll Tax Relief Provided to Employers Who Reclassify Their Workers as Employees

Original caption: Farm, farm workers, Mt. Will...

Worker or Contractor that is the question

If you or your clients think there might be an issue with the classification of  employees – that is, are your workers independent contractors or not, now is the time to look into correction.

WASHINGTON – The Internal Revenue Service  launched a new program that will enable many employers to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.

This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.

This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.

“This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:

  • • Consistently have treated the workers in the past as nonemployees,
  • • Have filed all required Forms 1099 for the workers for the previous three years
  • • Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

Full details, including FAQs, are available on the Employment Tax pages of IRS.gov, and in Announcement 2011-64, posted [September 21, 2011].

Tax Guidance – Election of Reduced Research Credit

TD 9539 contains final regulations that amend the regulations concerning the election to claim the reduced research credit.  The final regulations simplify how taxpayers make the election and affect taxpayers that claim the reduced research credit.These final regulations simplify the section 280C(c)(3) election to have the provisions of section 280C(c)(1) and (c)(2) not apply by requiring the election to be made on Form 6765, “Credit for Increasing Research Activities.”  The form must be filed with an original return for the taxable year filed on or before the due date (including extensions) for filing the income tax return for such year.  An election, once made for any taxable year, is irrevocable for that taxable year.

Six Things to Know About the Expanded Adoption Tax Credit

If you are adopting a child in 2011, the Internal Revenue Service encourages you to familiarize yourself with the adoption tax credit. The Affordable Care Act increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.

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

  1. The adoption tax credit, which is as much as $13,170, offsets qualified adoption expenses making adoption possible for some families who could not otherwise afford it. Taxpayers who adopt a child in 2010 or 2011 may qualify if you adopted or attempted to adopt a child and paid qualified expenses relating to the adoption.
  2. Taxpayers with modified adjusted gross income of more than $182,520 in 2010 may not qualify for the full amount and it phases out completely at $222,520. The IRS may make inflation adjustments for 2011 to this phase-out amount as well as to the maximum credit amount.
  3. 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.
  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 you must attach documents supporting the adoption. 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 still use IRS Free File to prepare your return, but it must be printed and mailed to the IRS, along with all required documentation. Failure to include required documents will delay your refund.
  6. The IRS is committed to processing adoption credit claims quickly, but it also must safeguard against improper claims by ensuring the standards for this important credit are met. If your return is selected for review, please keep in mind that it is necessary for the IRS to ensure 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.

For more information see the Adoption Benefits FAQ page available at www.irs.gov or the instructions to IRS Form 8839, Qualified Adoption Expenses, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).
Links:

YouTube Videos:

Adoption Credit: English | Spanish | ASL

Some Good News for Innocent Spouses

By Stacie Kitts, CPA

What is innocent spouse relief?

Basically, if your spouse cheated on your jointly filed tax return – and you didn’t know about it – you can apply for relief from the taxes, penalties and interest that resulted from the misreporting.

The prior rules applied a two year limit from the time the IRS first took collection actions for the innocent spouse to file for relief.  The two year limit is now removed.

WASHINGTON — The Internal Revenue Service  announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

“In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief,” said IRS Commissioner Doug Shulman. “This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future.”

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

  • The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
  • A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
  • The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

Reminder To File Your Highway Use Tax Return by November 30

Katherman Kitts & Co. LLP

By Stacie Kitts, CPA

Earlier this year the IRS announced an extension for filing Highway Use Tax Returns.  Originally due on August 31, truckers now have until November 30 to file their return.  Just in case you forgot, here is another reminder.

Because the highway use tax is currently scheduled to expire on Sept. 30, 2011, this extension is designed to alleviate any confusion and possible multiple filings that could result if Congress reinstates or modifies the tax after that date. Under  temporary and proposed regulations filed today in the Federal Register, the Nov. 30  filing deadline for Form 2290, Heavy Highway Vehicle Use Tax Return, for the tax period that begins on July 1, 2011, applies to vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to Nov. 1.

To aid truckers applying for state vehicle registration on or before Nov. 30, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year, ending on June 30, 2011.  Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose.  A state normally may accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through Sept. 30.

For those acquiring and registering a new or used vehicle during the July-to-November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

In general, the highway use tax applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold.

For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on Aug. 31. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July.

Last year, the IRS received about 650,000 Forms 2290 and highway use tax payments totaling $886 million.

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