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It's time to ship out those W-2s and 1099s again.

Tue, 17 Jan 2012 09:00:00 -0500

It's time to ship out those W-2s and 1099s again.

This January ritual as inevitable: The mailing of W-2s and 1099s. While your employees may regard their arrival as almost a natural phenomenon, you know better. You the business owner has to be responsible for filling out those tallies of the previous years' wages and contract income and getting them into the hands of your workforce. And, that responsible party is you.

There is a reason you need to pay attention to this duty now: Deadlines are fast approaching. For any worker whom you paid more than $600 in 2011, you must do two things: (1) make sure the employee or contractor receives the proper form before the end of the month; and (2) make sure that you file this information with the IRS.

How to make the deadline

The due date is January 31. You meet the IRS requirement if you've properly addressed the appropriate form (W-2s and 1099-MISCs) and mailed it on or before that deadline.

The downside for failing to issue a correct Form W-2 or 1099 in time is serious business: The penalties range from $30 to $100 per document. That can add up fast, and it doesn't stop adding up until it reaches the small business penalty cap of $500,000. Worse: if the IRS determines that your failure to file is the result of intentional disregard of its requirements, the penalty is at least $250 per payee statement with no maximum. And if you are mad at someone and you willfully file a fraudulent claim that you made payments to a person when you didn’t, that person can also sue you for damages of $5,000 or more.

Why you can't file and forget

Remember that your obligation does not end once the forms are winging their way to your workers. You also have to get the data to the IRS. Generally, you have until February 29.t

Remember that you can’t designate any worker, including yourself, as an employee or contractor solely by issuing them a W-2 or 1099-MISC. The worker's classification is something that you have to get right – there are tough penalties for improperly treating employees as contractors. See our previous blogs and tax tips.

If you are scrambling right now to gather all this information and get it to your workers and the IRS, be sure to take some time to think about how to avoid the same last-minute rush next year. If you don't like worrying about getting all the proper paperwork to the IRS and spending all the time associated with the W-2 and 1099's. Let Granite Payroll Associates do that for the IRS. You should spend your Januarys keeping your customers happy. Do what you do best and let the professionals do what they do best.

Tax responsibilities of U.S. citizens and dual citizens living abroad

Wed, 14 Dec 2011 09:00:00 -0500

The IRS has provided info to clarify the tax responsibilities of U.S. citizens and dual citizens living abroad in response to concerns from expatriates about penalties that might be levied on their unpaid taxes and undeclared bank accounts.

The IRS posted the information on its Web site Friday to address worries from Americans living abroad that they would be subject to heavy penalties they had never been aware of until recently

The Foreign Account Tax Compliance Act, or FATCA, which was included as part of the HIRE Act last year, requires foreign financial institutions to report directly to the IRS information about the financial accounts held by U.S taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Taxpayers who don’t report the information on foreign bank account reporting forms could be subject to heavy penalties. Expatriate groups such as American Citizens Abroad have expressed concerns about being penalized for having retained their U.S. citizenship.

IRS

The IRS ease some fears about settlement offer for misclassified workers

Thu, 08 Dec 2011 15:30:00 -0500

News:

The IRS ease some fears about settlement offer for misclassified workers

Among other things, the IRS Explained that Voluntary Classification Settlement Program participation won't trigger a federal audit and that IRS won't share information about participants with the Department of Labor (DOL) or state agencies.

Background. Earlier this year, IRS launched this new program that allows employers to prospectively reclassify—as employees—those workers that they have erroneously treated as independent contractors or as other nonemployees.

The new program carries generous settlement terms and provides audit relief for previous years. (See our previous blog entry) This program is available to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. It is open to businesses, tax-exempt organizations, and government entities.

To be eligible, a taxpayer:

Must have consistently treated the workers as nonemployees;
Must have filed all required Forms 1099 for the workers for the previous three years; and
Cannot currently be under audit by IRS, or currently under audit concerning the classification of the workers by the DOL or by a state government agency.
A taxpayer that was previously audited by IRS or DOL about the classification of the workers will only be eligible if it has complied with the results of that audit.

Terms of the offer.

A taxpayer accepted into the program agrees to prospectively treat the class of workers as employees for future tax periods and in exchange:

(A) Pays 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced IRS rates.

(B) Won't be liable for any interest and penalties on the liability;

(D) Agrees to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

THE IRS HAS RECENTLY CAME OUT WITH THE FOLLOWING CLAFIFYING POINTS ABOUT THE VOLUNTARY PROGRAM:

IRS's rejection of a application will not automatically trigger initiation of a Federal audit. The rejected taxpayer could be audited for another reason, but not as a result of filing Form 8952 (Application for Voluntary Classification Settlement Program)
A taxpayer that signs into the Voluntary Program agreement is not admitting liability or wrongdoing for past periods.

One of the threshold qualifications for the Voluntary Program is filing Forms 1099 for the previous three years for affected workers. IRS says a taxpayer will be eligible for the Voluntary Program if it files the required Forms 1099 within 6 months of their due date (including extensions), assuming the other eligibility requirements are met. Those that haven't previously filed required Forms 1099 or filed them more than 6 months after their due date (including extensions) are not eligible for the Voluntary Program.

IRS says that it won't share information about Voluntary Program participants with the Department of Labor or state agencies.

IRS also clarifies that a worker's filing of Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) isn't treated as an audit and won't bar the taxpayer from participating in the Voluntary Program.

Why it is necessary for you to make estimated tax payments.

Mon, 28 Nov 2011 13:11:18 -0500

Why it is necessary for you to make estimated tax payments.

Individuals must pay 25% of a “required annual payment” by Apr. 15, June 15, Sept. 15, and Jan. 15, to avoid an underpayment penalty. (When that date falls on a weekend or holiday, the payment is due on the next business day.) The required annual payment for most individuals is the lower of 90% of the tax shown on the current year's return or 100% of the tax shown on the return for the previous year. Certain high-income individuals must meet a more rigorous requirement. If the adjusted gross income on your previous year's return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year's return or 110% of the tax shown on the return for the previous year.

Most people who receive the bulk of their income in the form of wages satisfy these payment requirements through the tax withheld by their employer from their paycheck.

If you fail to make the required payments, you may be subject to an underpayment penalty. The penalty is tacked on for the period running from each payment's due date until the tax return due date, normally April 15th (or earlier, if the payment is made before the due date). This penalty is computed at 3% above the fluctuating federal short term interest rate for the period.

Most individuals make estimated tax payments in four installments. In other words, we determine the required annual payment, then divide that number by four and make four equal payments by the due dates. But you may be able to make smaller payments under the annualized income method. This method is useful to people whose income flow is not uniform over the year, perhaps because of a seasonal business. For example, if your income comes exclusively from a business that you operate in a resort area during June, July, and Aug., no estimated payment is required before Sept. 15. You may also want to use the annualized income method if a significant portion of your income comes from capital gains on the sale of securities which you sell at various times during the year.

The underpayment penalty doesn't apply to you:

(1) if the total tax shown on your return is less than $1,000 after subtracting withholding tax paid;

(2) if you were a U.S. citizen or resident for the entire preceding year, that year was 12 months, and you had no tax liability for that year;

(3) if you are a farmer or fisherman and pay your entire estimated tax by Jan. 15 of the following year, or pay your entire estimated tax by Mar. 1 of the following year and also file your tax return by that date; or

(4) for the fourth (Jan. 15) installment, if you aren't a farmer or fisherman, file your return by Jan. 31 of the following year, and pay your tax in full.

In addition, IRS may waive the penalty if the failure was due to casualty, disaster, or other unusual circumstances and it would be inequitable or against good conscience to impose the penalty. The penalty can also be waived for reasonable cause during the first two years after you retire (after reaching age 62) or become disabled.

Collection Due Process procedures

Tue, 22 Nov 2011 09:30:10 -0500

The Collection Due Process (CDP) procedures, which generally require IRS to give taxpayers a hearing relating to a lien or levy.

A CDP hearing relating to a lien is available in cases where the taxpayer has received notice of IRS's filing of an NFTL (a notice of federal tax lien). A notice of filing of an NFTL will include a statement notifying the taxpayer of his right to request a hearing relating to the lien. The notice is received on Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.

A similar method of administrative appeal through CDP procedures is available for levies. A CDP hearing before levy in available where the taxpayer has received a notice of intent to levy. A notice of intent to levy is provided on either Letter 1058,

Final Notice,
Notice of Intent to Levy
and Notice of Your Right to a Hearing,

or LT 11, Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing. The notice is accompanied by a notification in writing of the taxpayer's right to request a hearing before levy. IRS doesn't have to send a notice of intent to levy

(1) if it determines that collection of tax is in jeopardy,

(2) before levying on a state to collect federal tax liability from state tax refunds,

(3) for “disqualified employment tax levies,” or

(4) for certain “federal contractor levies.”

However, in such cases the taxpayer must be given a chance for a post-levy CDP hearing within a reasonable period of time after the levy.

An important advantage of CDP procedures over other types of administrative review available to taxpayers is the fact that, in CDP procedures, IRS's final determination isn't final. A determination in a CDP hearing may be appealed to the Tax Court.

IRS's notice to the taxpayer informing him of his right to a CDP hearing will generally include Form 12153, Request for a Collection Due Process or Equivalent Hearing, which the taxpayer may use to request a hearing. But a written request in any form is acceptable if it requests a CDP hearing and includes the taxpayer's name, address, daytime telephone number (if any), and taxpayer identification number (SSN, ITIN or EIN), the type of tax involved, the tax period at issue, a statement that the taxpayer requests a hearing with Appeals concerning the proposed levy or the filing of the NFTL, and the reason or reasons why the taxpayer disagrees with the proposed levy or the filing of the NFTL. The request for a CDP hearing must be signed by the taxpayer or the taxpayer's authorized representative, and dated.

CDP procedures are only available if the taxpayer requests a CDP hearing within a 30-day period. This 30-day period is calculated, in the case of levies, from the day after the taxpayer receives notice of his right to a hearing, and, in the case of liens, from the day after the end of the five-day period within which IRS must provide notice to the taxpayer of the filing of a notice of federal tax lien. A mailed request must be postmarked within the 30-day period, but doesn't have to be received within that period. These time limits can't be waived and a taxpayer who fails to meet them can't get a CDP hearing. He may, however, still be able to get a so-called “equivalent hearing.” An equivalent hearing is substantially the same as a CDP hearing in its procedures, but has a major flaw in that the hearing determination is not subject to judicial review.

A written request submitted within the 30-day period that does not satisfy content requirements is considered timely if the request is perfected within a reasonable period of time. If the request for a CDP hearing is untimely, either because the request was not submitted within the 30-day period or not perfected within the reasonable period provided, the taxpayer will be notified of the untimeliness of the request and offered an equivalent hearing. In these cases, the taxpayer may obtain an equivalent hearing without submitting an additional request.

Regardless of whether the CDP procedure relates to a lien or a levy, if the taxpayer requests a hearing, the hearing will be conducted by an officer or employee in IRS's Office of Appeals who did not previously participate in matters involving the taxpayer and the unpaid tax at issue. Both types of CDP hearings are informal and neither the taxpayer nor his representative has the right to subpoena and examine witnesses. A CDP hearing doesn't require a face-to-face meeting but a taxpayer can ordinarily get one, unless he makes only irrelevant or frivolous arguments. Neither type of CDP procedure is available to nominees of, or persons holding property of, the taxpayer.

The taxpayer may raise at a CDP hearing any relevant issue relating to the unpaid tax or the proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives (alternatives usually are installment agreements or offers in compromise). Challenges to the appropriateness of collection actions can include claims that the taxpayer received a discharge in bankruptcy or that the statute of limitations on collection has expired or that the liabilities are currently not collectible. A taxpayer may also challenge the existence or amount of the underlying tax liability for any tax period, but only if he did not receive a statutory notice of deficiency for that liability or did not otherwise have an opportunity to dispute that tax liability.

A $5,000 penalty is imposed upon any person who submits a request for a CDP hearing (or submits any one of certain other types of specified submissions) if any portion of the submission is either based on a position which IRS has identified as frivolous, or reflects a desire to delay or impede the administration of federal tax laws. IRS may also treat that portion of the submission as if it had never been submitted (i.e., dismiss it out of hand). However, the penalty is clearly aimed at those who abuse the process and should not deter taxpayers with legitimate disputes from using the CDP process.

Unless the taxpayer provides IRS with a written withdrawal of the request that IRS conduct a CDP hearing, IRS must issue a notice of determination in all cases where a taxpayer has timely requested a hearing. After the hearing, IRS issues its determination by sending the taxpayer a notice of determination by certified or registered mail. Within 30 days of the determination, the taxpayer may appeal the determination to the Tax Court.

Stricter rules apply to energy saving home improvements

Tue, 22 Nov 2011 09:23:31 -0500

Stricter rules apply to energy saving home improvements.

You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year; and (2) the amount of the residential energy property expenses you paid or incurred during the year.

The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards).

Small employer health insurance credit

Wed, 16 Nov 2011 09:53:42 -0500

http://www.dennisassociates.com/tax-tips/small-employer-health-insurance-credit/

Check this out ... see if it applies to your business

IRS's Voluntary Classification Settlement Program for misclassified workers

Tue, 15 Nov 2011 17:10:55 -0500

the Voluntary Classification Settlement Program

This program allows employers to reclassify as employees those workers they have erroneously treated as independent contractors. The program has generous payment terms, and participants get relief from employment tax audits for previous years. Here are the details.

Employee or independent contractor? Whether a worker is classified as an employee or as an independent contractor makes a big difference for federal income and employment tax purposes. If a worker is an employee, the employer must withhold federal income and payroll taxes on the employee's wages, pay the employer's share of FICA taxes and the FUTA tax, and often provide the worker with fringe benefits it makes available to other employees. There may be state tax obligations as well.

None of those obligations apply for workers who are independent contractors. Instead, the business merely sends the independent contractor a Form 1099-MISC for the year showing what he was paid (if it amounts to $600 or more).

In general, an individual is an employee if the enterprise he works for has the right to control and direct him regarding the job he is to do and how he is to do it. Otherwise, he is an independent contractor.

Because the stakes are high, the issue is often hotly contested between taxpayers and IRS. The VCSP will allow employers to resolve past worker classification issues by voluntarily reclassifying their workers without undergoing an audit.

Who is eligible. The VCSP is available to taxpayers who have consistently treated their workers (or a class or group of their workers) as independent contractors and now want to treat them as employees prospectively. To be eligible, the taxpayer must have filed all required Forms 1099 for the workers for the previous three years.

A taxpayer who is currently under IRS audit isn't eligible for the program. Likewise, a taxpayer who is under an employment tax audit by the Department of Labor (DOL) or a state government agency is ineligible. However, a taxpayer that was previously audited by IRS or the DOL about the classification of its workers will be eligible if it has complied with the results of that audit.

Terms of the program. A taxpayer who is accepted into the VCSP must agree to treat the class of workers as employees for future tax periods. The taxpayer must also agree to allow IRS an extra three years to assess employment taxes. This extension applies for the first three calendar years beginning after the agreement takes effect.

In exchange for making these concessions, the taxpayer gets the following benefits:

The taxpayer must pay only 10% of the employment tax liability on compensation paid to the workers for the most recent tax year, determined under reduced rates (see “Figuring the payment due,” below).
The taxpayer won't be liable for any interest and penalties on the employment taxes.
The taxpayer won't be subject to an employment tax audit for the classification of the workers for prior years.

Taxpayers may choose to reclassify some or all of their workers. However, once a taxpayer chooses to reclassify certain workers as employees, it must treat all workers in the same class as employees. For example, suppose that a construction firm currently contracts with its drywall installers, electricians, and plumbers to perform services at construction sites. It wants to voluntarily reclassify its drywall installers as employees. Once the VCSP closing agreement is signed, the company must treat all drywall installers as employees for employment tax purposes.

Figuring the payment. The payment due under the VCSP is 10% of the employment taxes, calculated under reduced rates, on the compensation paid to the reclassified workers in the most recently completed tax year, determined at the time the VCSP application is filed.

If you apply for the VCSP in 2011, the most recently completed tax year is 2010. The reduced rate is 10.68% of compensation up to $106,800 (the Social Security wage base) and 3.24% of compensation above $106,800. You will pay only 10% of that amount.

If you apply in 2012, the most recently completed tax year will be 2011. The reduced rate will be 10.28% of compensation up to $106,800 and 3.24% of compensation above $106,800. Again, you will pay only 10% of that amount.

Illustration: A company paid $1.5 million in 2010 to workers that are the subject of a VCSP application. None of the workers were paid more than $106,800 in wages.

The company submitted its application on Oct. 1, 2011. It wants to begin treating the workers as employees on Jan. 1, 2012. The company calculates the payment due based on amounts paid to the workers in 2010, because 2010 was the most recently completed tax year when the application was filed.

Under the reduced rates, the employment taxes on $1.5 million of wages would be $160,200 (10.68% of $1.5 million). The company's VCSP payment would be 10% of $160,200, or $16,020.

Procedure. Taxpayers apply to participate in the VCSP by filing Form 8952 with IRS at least 60 days before the date they want to begin treating the workers as employees. No payment should be made at that time. After IRS reviews the application, it will contact the taxpayer, or the taxpayer's authorized representative, to complete the process.

Taxpayers who are accepted into the VCSP must enter into a closing agreement with IRS. Full payment is due when the taxpayer returns the signed closing agreement to IRS.

Should you participate in the VCSP? Although the VCSP's terms are generous, any decision to participate in the program should be made carefully, after weighing the costs and benefits. Agreeing to treat workers as employees may have far-reaching consequences under a variety of federal and state statutes. The right choice may depend on how clear it is that the workers are in fact employees.

We are available to discuss with you the pros and cons of participating in the VCSP in your specific situation. Please call our office to arrange for an appointment. If participation is right for you, I can help you in filing an application and negotiating a closing agreement.

IRS Allows Tax Break for Bonuses

Tue, 15 Nov 2011 15:27:06 -0500

IRS Allows Tax Break for Bonuses

The Internal Revenue Service has issued a new 2011 revenue ruling permitting an employer that is using an accrual method of accounting to take a deduction in the current year for a fixed amount of bonuses payable to a group of employees, even though the employer does not know which of the employees will receive a bonus or the amount of any particular bonus until after the end of the taxable year.

Under a new 2011 Revenue Ruling, employers could take a deduction on the bonuses, whether or not the employees has determined who will receive the bonus.

“In other words, the entire amount of the bonus pool will be paid to members of the group of employees in the following year, but at the end of the current year the employer doesn’t yet know which particular employees will receive any bonus or how much,” the IRS said when issuing the revenue ruling Wednesday.

The revenue ruling could prove helpful in particular to financial firms that typically award year-end bonuses to high-performing employees. . In the 2011 revenue ruling, the IRS cited court precedents involving the Washington Post Company and casino operator Hughes Properties

Year End Tax Planning

Wed, 09 Nov 2011 14:46:27 -0500

Year End Tax PlanningYear End Tax Planning

Checklist of things to do before the end of 2011.

There are many tax-saving steps that can be taken before the end of this year. Here is a list of the most important actions that should be taken no later than Dec. 31, 2011 to save taxes:
... Realize losses on stock while substantially preserving investment position,
... Convert investment income taxable at regular rates (e.g., interest income) into qualifying dividend income,
... Arrange with employer to defer bonus until 2012,
... Increase basis in S corporation or partnership to make possible a 2011 loss deduction,
... Use credit card to prepay expenses,
... Make energy saving improvements to your home that qualify for tax credits in 2011,
... Pay contested taxes to deduct them this year while continuing to contest them next year,
... Put equipment in service before year-end to qualify for the 100% bonus first-year depreciation allowance,
... Make expenditures qualifying for the $500,000 business property expensing election,
... Settle insurance or damage claim if this will maximize casualty loss deduction,
... Apply bunching strategy to “miscellaneous” itemized deductions , medical expenses, and other itemized deductions to increase deductible amounts.
... Increase withholding to eliminate or reduce estimated tax penalty,
... Set up self-employed retirement plan,
... Make gifts taking advantage of the $13,000 gift tax exclusion,
... Watch out for marriage penalty in regard to year-end marriage or divorce plans,
... Consider deferring a debt cancellation event until 2012,
... Decide whether to elect to deduct investment interest against capital gains and/or qualified dividends,
... Avoid personal holding company tax by making dividend payments,
... Take steps to avoid or minimize income tax on Social Security benefits,
... Structure real estate deal to avoid paying interest on tax deferred under installment method,
... Step up level of participation in business activity to meet material participation standard under passive loss rules,
... Dispose of passive activity to free up suspended losses,
... Ask employer to increase withholding of state and local taxes to pull the deduction of those taxes into 2011,
... Extend subscriptions to professional journals, pay union or professional dues, enroll in (and pay tuition for) job-related courses, etc., to bunch into 2011 miscellaneous itemized deductions subject to the 2%-of-AGI floor,
... Accelerate a big ticket purchase (such as a boat or car) into 2011 to qualify (if the taxpayer itemizes) for state and local sales tax deductions instead of state and local income taxes.

How to shift expenses
How cash-method taxpayers shift expenses. If a taxpayer is permitted to, and does, keep his tax records on a cash basis, his expenses are deductible when paid. Thus, he can accelerate 2012 expenses into 2011 by doing the following:
(1) Pay in 2011 all bills already received for expenses rather than deferring payment until 2012.
(2) Choose to incur and pay in 2011 expenses that would normally be incurred and paid in 2012. For instance, the taxpayer might order and take delivery of office supplies or have repair and maintenance work performed before the end of 2011 instead of waiting until early 2012.
(3) Prepay expenses where feasible. Certain other prepayments made by cash method taxpayers, such as prepaid compensation, must be prorated over the period to which they apply. have permitted deduction in the year of payment for a business insurance premium that overlaps portions of the year of payment and of the following year, when the taxpayer has followed a consistent practice of doing so. IRS has held that a cash basis taxpayer may deduct in the year of payment a full year's rent, even though most of the payment would be applied to the following year.

(4)Step up withholding of state and local taxes. If the taxpayer expects to owe state and local income taxes when he files his return next year, he should consider asking his employer to increase withholding on those taxes. That way, additional amounts of state and local taxes withheld before the end of the year will be deductible in 2011.
(5) Pay the last installment of estimated state and local taxes for 2011 by Dec. 31 rather than on the 2012 due date.
(6) Use credit card charges to accelerate deductible expenses. Charitable contributions and medical expenses are deductible when charged to a taxpayer's credit card account (e.g., in 2011) rather than when he pays the card company

In 2010, the federal government permanently dropped the income limit for moving savings to a Roth IRA from a traditional individual retirement account. Once you have met certain holding requirements, future withdrawals from a Roth are income-tax free—even for your heirs.

But to get that future tax break, you have to pay income tax upfront on the value of the pretax assets you move into a Roth. With market volatility denting many investors' returns, they could get stuck paying tax on investment value that no longer exists.

But there is a fix—if you act fast. The federal government allows the tax-law equivalent of a do-over, says Maria Bruno, an investment analyst at fund giant Vanguard Group, whose customers converted more than 230,000 traditional IRAs to Roths last year, and which has processed 3,900 do-overs this year, as of Monday.

Up until the final tax-return filing deadline for extensions—Oct. 17 this year—investors who transferred traditional IRA holdings to a Roth in 2010 can move them back to a traditional IRA and avoid tax. If you filed your 2010 tax returns already, you can amend them.

Careful handling of capital gains and losses can save taxes.

Individuals who lost money in the stock market or in investment real estate in 2011 may have other investment assets that have appreciated in value. These taxpayers should consider the extent to which they should sell appreciated assets (if their value has peaked) and thereby offset gains with pre-existing losses.

Long-term capital losses are used to offset long-term capital gains before they are used to offset short-term capital gains. Similarly, short-term capital losses must be used to offset short-term capital gains before they are used to offset long-term capital gains. Noncorporate taxpayers may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing AGI.

For 2011 and 2012, a noncorporate taxpayer is subject to tax at a rate as high as 35% on short-term capital gains and ordinary income. On the other hand, most long-term capital gains are taxed at a maximum rate of 15%. However, for 2011 as well as 2012, the maximum rate is 0% to the extent the gain would otherwise be taxed at a rate below 25% if it were ordinary income. Restricting annual payouts from retirement plans and IRAs to the required minimum distribution (RMD) (and taking cash from other accounts as needed) may help some taxpayers to take advantage of the 0% capital gains rate.

A taxpayer should try to avoid having long-term capital losses offset long-term capital gains since those losses will be more valuable if they are used to offset short-term capital gains or ordinary income. To do this requires making sure that the long-term capital losses are not taken in the same year as the long-term capital gains are taken. However, this is not just a tax issue. As is the case with most planning involving capital gains and losses, investment factors need to be considered. A taxpayer won't want to defer recognizing gain until the following year if there's too much risk that the value of the property will decline before it can be sold. Similarly, a taxpayer won't want to risk increasing the loss on property that he expects will continue to decline in value by deferring the sale of that property until the following year.

Consider effect of marriage penalty (or marriage bonus).

A taxpayer's marital status for the entire year is determined as of Dec. 31. A taxpayer who gets married (or divorced) on that date is treated as if he were married (or single) all year long.

One of the tax consequences of marriage may be the payment of the so-called “marriage penalty.” This is likely to happen where the husband and wife each have substantial and relatively equal amounts of taxable income.

One reason for the marriage penalty is that the tax brackets above 15% cover a larger total amount of income for two single taxpayers. For example, in 2011 two unmarried taxpayers can have a total of $167,200 in taxable income without being subject to the 28% rate. If they're married, the 28% bracket applies to amounts in excess of $139,350. Also, the 33% rate begins at $212,300 on a joint return. On the other hand, two unmarried taxpayers can have as much as $348,800 before hitting the 33% bracket. Finally, single taxpayers can each have up to $379,150 of taxable income taxed below the maximum (35%) tax rate in 2011, while married couples can only have combined taxable income of $379,150 taxed below the maximum rate.

When C corporations should defer or accelerate income.

C corporations, like individuals, must also decide when and how to shift income and deductions between 2011 and 2012. C corporations will, as a general rule, benefit from the deferral of income and the acceleration of deductions in the same way as individuals.

However, acceleration of income may be advisable in some cases. Take, for example, a corporation subject to the 39% “bubble.” Corporate taxable income between $100,000 and $335,000 is taxed at the rate of 39% to phase out the benefits of the 15% and 25% brackets that cover a corporation's first $75,000 of taxable income.

Taxable income between $75,000 and $100,000, and between $335,000 and $10 million, is taxed at 34%. Taxable income over $10 million is taxed at 35%, except that there is also a 38% “bubble” that applies to corporate taxable income between $15 million and $18,333,333 to eliminate the benefit of the 34% rate.

Taking S corporation losses.

A shareholder can deduct his pro-rata share of S corporation losses only to the extent of the total of his basis in (a) the S corporation stock, and (b) debt owed him by the S corporation. This determination is made as of the end of the S corporation tax year in which the loss occurs. Any loss or deduction that can't be used on account of this limitation can be carried forward indefinitely. If a shareholder wants to claim a 2011 S corporation loss on his own 2011 return, but the loss exceeds the basis for his S corporation stock and debt, he can still claim the loss in full by lending the S corporation more money or by making a capital contribution by the end of the S corporation's tax year

1 month ago

David Dennis • The Tax Court has held that a taxpayer couldn't deduct purported management fees, in amounts greater than IRS allowed, that his single-member limited liability company (LLC) paid to his wholly owned C corporation.

Background on business deductions. Under Code Sec. 162(a) , a taxpayer can deduct all ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. A trade or business expense is ordinary if it is normal or customary within a particular trade, business, or industry. It is necessary if it is appropriate and helpful for the development of the business.

Courts have held that for expenses to be deductible as ordinary and necessary, they must be reasonable, because the element of reasonableness is inherent in the phrase “ordinary and necessary.” The reasonableness concept has particular significance in determining whether payments between related parties, such as commonly controlled business entities, represent ordinary and necessary expenses.

The Tax Court has held that a taxpayer wasn't entitled to deduct consulting fees it paid to its subsidiary where the taxpayer failed to establish how the fees were determined, there was no written contract, the invoices provided almost no detail, and there was no evidence of the service provider's skills that might warrant the consulting fees. (ASAT, Inc., (1997) 108 TC 147 ) The Tax Court has also held that a taxpayer's wholly owned S corporation was not entitled to deduct management fees paid to another of his wholly owned S corporations where the evidence did not adequately establish the specific services performed and who performed them.

David Dennis • Time for executors to make portability election for 2011 decedents. In a new notice and accompanying news release, the IRS reminded executors of the estates of married decedents dying after 2010 that they must file an estate tax return in order to pass along the unused estate and gift tax exclusion amount, available for the first time this year, to their surviving spouse. The first estate tax returns for estates eligible to make the portability election started becoming due on Oct. 3, 2011 (i.e., nine months after a post-2010 date of death). Because the IRS believes that most married couples will want the surviving spouse to be able to take advantage of the unused exclusion amount of the first spouse to die, the election is deemed made if a Form 706 (estate tax return) is properly and timely filed. No affirmative statement or other indication is necessary. Even if the estate isn't required to file a Form 706 (e.g., because the value of the gross estate is less than the exclusion amount), the Form 706 must be filed in ordered to make the election. For estates that choose not to make a portability election, if that estate is otherwise required to file a Form 706, the executor must follow the instructions for Form 706 describing the necessary steps to avoid making the election. For estates that aren't required to file a Form 706, simply not filing the form will effectively prevent the making of the election.

David Dennis • Deferring Income - the "Accrual Basis Tax Payer"

The mere fact that the receipt of cash is delayed doesn't defer taxable income for an accrual-basis taxpayer. As soon as an accrual-basis taxpayer's right to the income is fixed, and its amount can be determined with reasonable accuracy, it's taxable. (In the case of certain tax shelters, C corporations and partnerships having a C corporation as a partner, use of the accrual method is obligatory. Certain taxpayers with inventories also must use the accrual method.

Because of this, generally the only way an accrual-basis taxpayer can postpone income (other than by using the installment sale method) is to defer the actual right to payment for the services or merchandise delivered.

One way to do that would be to postpone completion of a job until 2012 so as to have the right to income arise only in 2012, even though most of the actual work is done in 2011. (Note, however, that some special rules apply to certain long-term contracts for the manufacture, building or construction of property, which often require the recognition of income on a percentage-of-completion basis.

Another way would be to hold up deliveries where that would defer accrual.

This would be the case where the seller's right to payment is contingent on delivery of the property to the buyer. In fact, delaying delivery until 2012 can defer accrual even where an advance payment for the merchandise is received in 2011. Advance payments against the sale of merchandise generally don't give rise to income until the payments are otherwise properly accruable under the taxpayer's own method of accounting.

Other ways to defer income are by postponing the closing of a sale, or by delaying the settlement of a pending dispute over an item of income.

THE PIZZA INDUSTRY

Wed, 09 Nov 2011 14:36:12 -0500

THE PIZZA INDUSTRY It has been suggested that skimming may be common in the pizza industry

Examinations have also revealed that several taxpayers took cash out of the drawer without reporting the amount as income. There is virtually no audit trail to determine the amount of funds spent for business and personal expenses. When it is time to make a deposit, some taxpayers would pocket some of the cash and deposits only that portion necessary to cover those expenses to be paid by check. It was found in many cases that business expenses as well as personal living expenses were paid with cash taken from the cash drawer. Audits in Providence have uncovered as much as $700 per week in cash being taken out of the cash drawer.

Furthermore, the project group also found that many pizza restaurant owners are aware of the Government's need to establish certain facts to fully develop the unreported income issue. Most of the individuals encountered by the project group appeared to live modestly with no apparent great accumulation of assets. Therefore, examiners should be alert to look beyond this to develop the underrporting income issue.

The following situations are indications of poor sales records.

1. Gross receipts on the tax return come from monthly summary sheets. The amounts are all even, round amounts with no further backup.
2. Gross receipts per return come from monthly sales tax returns filed with the state. The sales tax returns are the only records of gross receipts.
3. Taxpayer computed receipts based on deposits to the bank accounts, yet failed to report the deposits made to personal accounts and cash payouts.
4. Taxpayer has absolutely no documentation to support the income reported on the tax return.

the agent should look for the following:
1. Personal living expenses well above reported income
2. Assets acquired possibly with skimmed receipts
3. Accumulation of funds in various bank accounts with no reported income
4. A low gross profit percentage 5. Assets such as automobiles, personal residence, etc., could be indications of unreported income
6. Other lavish expenses with no nontaxable source of income.

the total number of pizzas and grinders sold can be determined from the amount of ingredients purchased, and the restaurants income can, therefore, be reconstructed.

The following explains the steps in the reconstruction of pizza and grinder income.

PIZZA
1. Determine the total number of pounds of flour and cheese purchased and the number of cans of pizza sauce purchased.
2. Multiply the total number of pounds of flour and cheese by 16 to calculate the total number of ounces of flour and cheese, respectively.
3. Multiply the total number of cans of pizza sauce by 105 ounces (the total number of ounces in a #10 size can).
4. Divide the total ounces of flour, sauce and cheese purchased by the respective average weight of each ingredient per laboratory results.
5. The result is the total estimated number of pizzas sold based on flour, cheese or sauce purchased. The three methods (flour, cheese or sauce) should closely approximate pizza sales and should be relatively close. Attempt to use the lower, more conservative number of pizzas sold. If there is a large discrepancy between the three methods, there is a chance that not all of the suppliers have been identified, or possibly some products were purchased with cash.
6. Multiply the units sold by the average menu price of a large and small cheese pizza to arrive at pizza sales.

The most common problem identified during the examination of the pizza restaurants is the cash wages paid “off the books.” This appears to be a common practice in the restaurant business. Many times, employees are paid with cash taken from the cash register and there are no payroll or time records maintained.

The obvious problem here is the avoidance of taxes. The owner avoids the payroll taxes, but in addition, the employee avoids paying tax on the wages. It is nearly impossible to run a restaurant alone.

One method is to use the purchase invoices to identify employees who were not on the payroll but were signing the daily purchase delivery slips.

Bars & Resturants

Wed, 09 Nov 2011 14:33:43 -0500

BARS AND RESTAURANTS

Restaurants can be divided into two types of restaurants: fast food and full service. Fast food restaurants include those that provide only take-out services, as well as franchises offering -in or drive-through services

The bar and restaurant industry is particularly susceptible to theft and embezzlement. Bars and restaurants typically make numerous small dollar sales in a relatively short period of time (for example, lunch or dinner). Many employees receive and manage large amounts of cash. Some restaurants do not properly segregate the duties of their employees to the extent necessary to maintain good internal controls. This is especially true of bars where one bartender takes the order, fills the order, receives the payment, records the payment, and may even balance out the till at the end of the day. Bars and restaurants tend to pay their employees near minimum wage and have a high rate of employee turnover. Additionally, bar and restaurant employees often have access to large inventories of food and alcohol. For these reasons, bars and restaurants may have a high risk of employee theft and embezzlement unless they implement and maintain a set of good internal controls.

Some bar and restaurant owners may underreport income by any of several methods. For example, they may operate open tills, use double sets of books, and fail to report certain sales transactions. Restaurant employees may be aware of the owner's underreporting, and may even have been asked to assist in the underreporting of income. Additionally, a dishonest bar or restaurant owner may encourage dishonest employees. Bar or restaurant employees may underreport income by concealing cash receipts or underreporting tips.

The challenge for the examiner is to separate restaurant owners who are in compliance with the tax laws from restaurant owners who have failed to satisfy their tax obligations. To do this, the examiner should focus on 1) unreported income by the restaurant, 2) cost of sales, and 3) unreported tip income by the employees. While other issues may also be of concern to the examiner, these three issues will generally need to be addressed in the audit of a restaurant.

The following is a list of possible books and records that will be found during the examination:
1. Daily cash register tapes including credit card sales, credit card tips, cash sales in total and by server
2. Deposit slips
3. Credit card and house account charge slips
4. Daily operating reports
5. Weekly profit and loss reports
6. Check register or copies of coded voucher checks
7. Bank statements for checking, savings, and all credit card sales
8. Bank reconciliation
9. Cash pay-out recaps (by account classification)
10. Inventory reports of food, liquor, beer, and wine done daily, weekly, and at year-end 11. Purchases recap and unpaid bills recap (vendor and account classification)
12. Equipment purchases (include copy of invoice)
13. Payroll records including time cards and time sheet and payroll summary
14. Accrued payroll and payroll taxes entries
15. Monthly and/or quarterly tax returns
16. Annual tax returns including Forms W-2, 1099, 8027, and related entities' tax returns
17. Books of original entry including: cash receipts journal; sales journal; general ledger; and working trial balance
18. Monthly financial statements including income statement, balance sheet, cash flow statement, and changes in financial position
19. Employee sales and tip report (daily, quarterly, and annual)
20. Menu engineers system report showing standard costs and sales price by menu item.

COMMON METHODS AND INDICATIONS OF UNDER REPORTING INCOME

1. Record a smaller sales amount on the daily operating report than is shown on the cash register tape. This reduces the amount of cash that must be deposited for the day. 2. Regular cash overages. This is an indication that sales are not being recorded, and a breakdown in controls.
3. Collect the side income (for example, vending machine proceeds, tee shirt revenue, gambling fees, and admission charges) and do not include the income on the daily operating report.
4. Collect directly from special customers, parties, and banquets and do not report the income on the daily operating reports
5. Purchase food and supplies for personal consumption without reimbursing the restaurant.
6. Deposit supplier rebates into the owner's person account without recording the payments in the books and records.
7. Purchase food for friends, charge them, and do not record any amounts collected and pocket the funds.
8. Turn off the register or leave the cash drawer open for periods of time (for example, during the lunch rush).
9. Turning off the register hours ahead of the close of the restaurant.
10. Refusing to purchase a register which records time of sales, and when machine is balanced out. Refusing to purchase a point-of-sales system claiming the cost is too high.
11. Balancing out the till days or weeks after the end of the shift.
12. Depositing cash from sales days or weeks after the end of the shift.
13. Never depositing any coins collected from daily sales.
14. Use two registers to record sales, and only report sales from one.
15. Creates a second set of records of sales on same machine at the end of every day with lesser totals than originally recorded. This is done on older models of cash register machines.
16. Key in a smaller amount on the cash register than is collected and pocket the difference.
17. Have a vending machine with no record of income received from vendor, usually in cash.
18. Kickbacks from suppliers.
19. Specific credit cards not rung as a payment, for example Diner's Club may never be rung up as a sale.
20. Reimbursement from employees for uniforms.
21. Omission of side income such as tee shirt sales or pool table fees.
22. Sales from certain tables or chairs are not recorded or even assigned to a server on the machines.
23. Higher than expected food and liquor costs but company still operates at a loss in excess of 3 years.
24. One person prepares all the records and there is no separation of duties.
25. Falsifying records or invoices.
26. Destroying books and records especially after contacted for examination.
27. The cash register machine is changed frequently or is lost but is not a computerized system.
28. Duplicate guest checks are not kept.
29. Owner has high lifestyle or is acquiring assets with no apparent source of income. 30. Owner conceals assets.
31. Making false statements to IRS agents regarding income.
32. Attempts to hinder the examination. For example, failure to answer pertinent questions, repeated cancellations of appointments, or refusal to provide records.
33. Testimony of employees concerning irregular business practices.
34. Transfer of assets for purposes of concealment, or diversion of funds to key officers or trustees.
35. Backdating of documents.
36. Attempts to bribe the examiner.
37. Using false Social Security Numbers.
38. Assets located under other names.
39. Transactions surrounded by secrecy.
40. Use of secret bank accounts.
41. Claiming fictitious deductions.
42. Intentional under or over footing of columns in journal or ledger.
43. Unable to locate cash registers tapes.

44. Unable to locate cash registers machines.
45. Depositing income in other family name bank accounts.
46. High employee theft and possible embezzlement.
47. No employees report any tips, and none are reported to the IRS by the employer. 48. Report of cash robbery with police department for cash located in the home.
49. Payment of most business expenses with cash or personal expenses with cash that has never been recorded as income.

the Underground Economy

Wed, 09 Nov 2011 14:30:25 -0500

The underground economy represents income earned under the table and off the books. It can include legal and illegal, or black market, goods, including drug sales, money laundering and warehouse banking schemes. The underground economy is characterized by small, single, entrepreneurial businesses that can receive payment for their goods or services in the form of cash or bartered goods. The main goal is to avoid reporting income and paying taxes to governments.

Areas for potential abuse include the house with the perpetual yard sales, eBay sellers, craft fairs, selling homemade tamales, doing car repairs in the backyard, collecting cans and bottles for recycling, selling goods at pawn shops, day laborers on street corners.

The underground economy entrepreneur is not a business owner reporting small profits while living beyond all visible means. The underground economy entrepreneur is actively working to maintain a low economic level that does not draw attention. Some may hold a daytime job and operate in the underground by having a sideline business for unreported cash.

Traits of an Underground Worker

• Will keep a low economic profile to avoid suspicion. Unlike the typical under reporter who uses the business to pay for a brand new F350 pickup truck with sport tires, wheels and leather interior, the undergrounder will drive an older vehicle that appears to be in disrepair and will live in an older home in a lower income neighborhood. Both will probably be paid for in full.
• Can be found through word of mouth or will advertise in local free papers. An off the books hairstylist can be contacted through the local beauty supply store, or a cash plumber can be contacted through the local pipe supply outlet. The undergrounder relies on these sources to advertise his services.
• Will use an answering machine to screen calls so customers must provide their own telephone number or address before receiving a call back. This is because the undergrounder only accepts work when the money is needed, and because it allows the undergrounder to learn more about the customer before accepting a job.
• May use a postal box to protect the residence from scrutiny.
• Will engage in a trade that has minimal investment and overheard.
• Will not maintain a checking account or will not make significant deposits to a checking account. If a checking account is used, the underground funds will not be deposited. Is there is legitimate earned income that will be the source of any bank deposits?
• Will cash checks paid for services at a bank (without depositing the funds), or at a check cashing service.
• Will receive cash for services or goods. If work is performed for a large business that requires a SSN, the SSN provided will be phony or the worker will make up a corporate name so no information reporting is required.
• Will be characterized by resourcefulness, always alert for cash earnings, and usually is not limited to just one income source. A moving business will report receipts made by check, but cash payments, and cash received from used car sales is never deposited. A restaurant will report credit card receipts, but cash payments and sales from seasonal Christmas trees are never deposited.
• May receive government benefits, such as Welfare, EITC, Unemployment Compensation, disability or SS Income.
• Will pay personal living expenses in cash or by money order.
• May not have insurance. Business liability insurance can be costly and undergrounders will eliminate this cost, as well as vehicle insurance (if possible) and worker compensation. Helpers will be unreported and paid in cash.
• Will own a safe.

Locating Underground Economy Workers

Workers in the underground economy will take extreme care to make sure income cannot be reported on Forms 1099. They will try to always get payments in cash, but if that is impossible, they will provide a false social security number. The undergrounder knows that social security numbers cannot be immediately verified and will not accept any further work from that payor. Another tactic the undergrounder may use is to explain that he or she is the sole shareholder in a corporation with the same name, i.e. John Smith Plumbing (just make it out to John Smith.)

The best way to locate an undergrounder is through cash invoices found in related examinations. When the examiner encounters payments for goods or services made in cash and verified by questionable, possibly handwritten, invoices, it is very likely the taxpayer paid an undergrounder to do the work. Further questions should be asked to determine how the taxpayer located the underground worker, and if the worker is known to work for other local businesses, or if they worked on personal jobs for the taxpayer.

If the examiner follows up and determines the undergrounder's home is not extravagant, do not be dissuaded. Even a small economic lifestyle will cost money to maintain, and it may be deceptive because cash expenditures and cash accumulation are not immediately evident. The undergrounder's lifestyle will still require more income than what is reported.

Underground economy workers can be found on community bulletin boards. Theirs will be the handwritten 3x5 cards, or the business cards that do not list a license number when needed. Because they will not advertise in the typical ways, the undergrounder will make flyers to leave on doors and will rely on contacts made at donut shops and local restaurants. Remember, the underground entrepreneur will frequent local spots and rely on local contacts.

They will be known to legitimate businesses that will send work their way when a job is too small or labor intensive for the legitimate business.

Undergrounders can best be identified through acquisitions. The most lucrative time to locate underground economy workers is when they use their cash to make significant purchases. The nature of the business is that large amounts of cash are accumulated, but must be used very carefully. Vacations can be taken if expenses can be paid in cash. Gambling is a good diversion for the cash earner and any illegal activities, like drug purchases, always accept cash. But, eventually the undergrounder will want to enjoy the earnings or invest them, and this is the time for identification.
• Real estate (usually vacant land) will be purchased from private parties, so any large cash transactions remain hidden, but the title transfer will be recorded. Real estate may also be purchased out of the home state in an effort to shield the purchase.
• If there is a legitimate business that reports constant losses, hidden funds may be hidden in inventory. Unreported profits can be used to purchase additional inventory. The examiner should always inspect the physical inventory to see if it is consistent with the reported inventory. It is unlikely the undergrounder will provide their inventory records, so the examiner must rely on their own experience to determine if the inventory is understated.
• Auto dealers almost always report large cash transactions, but a private party will accept cash over $10,000 without making a report. Any new, sports or luxury vehicle will be kept hidden in a closed garage or another location.

IRS Audit Techniques

• Comparative Analysis of assets and interest- Accumulation of cash could be identified by a multiple year analysis of an individual's assets and interest expense. An increase in assets without additional indebtedness and with too little sources of income suggests hidden income is available from some source.
• Barter Activity- In the underground economy goods and services are easily traded between individuals. When the undergrounder acquires assets (a used tractor, work truck, computer) or services (house gets painted, car seats reupholstered) this is income earned in the underground economy.
• Test Checks Written- Analyze the checks written from known bank accounts. Prepare a spreadsheet with each month (Jan, Feb, Mar, etc.) across the top and normal personal expenses down the first column (Mortgage, Electricity, etc.). Simply place a check mark for each month where a check is written to pay for the personal expense. This will show the amount of expenses that must have been paid in cash, and the examiner can begin questioning where the cash originated and how else was it spent.
• Cash Transaction Report- Check the current year, in addition to the two prior and two subsequent years. Prior and subsequent year purchases will show there was income available and how it was spent. These clues can lead the examiner to other discoveries.
• Loan Applications- If any loans were applied for, the undergrounder may have identified a source of income and these applications should always be secured by the examiner. Even prior year information is helpful and can lead the examiner to discover the source and use of hidden income. In contrast, a lack of debt where there should be some, (i.e. mortgage, car payments, credit cards) indicates an ability to easily afford the lifestyle.
• Civil, Criminal and Family Court- Determine if any lawsuits were filed against the individual. Creditors or wronged business associates will list known assets or pledged collateral in court filings. Divorces can disclose hidden income or assets.
• Third Party Contacts- Possible business associates, former spouses, and creditors can all be contacted for information.

Department may have exceeded its authority

Wed, 09 Nov 2011 14:28:58 -0500

Maintaining adequate books and records for sales and use tax in the electronic age.

The New York State Department of Taxation and Finance has issued new guidance as to the standards for books and records in general and “point-of-sale” (POS) systems in particular. The standards enunciated, however, seem to exceed past legislative or judicial requirements and may in fact be impossible to satisfy.

These changes include more stringent standards for entities using automated POS systems as compared to their manual or register-only counterparts. Further, the increased requirements placed on users of POS systems may actually discourage their use in favor of traditional (and potentially less reliable) paper invoice and register systems.

Finally, the Department may have exceeded its authority in requiring POS systems to meet standards of reliability that exceed traditional systems.

List of Expiring Federal Tax Provisions 2010-2020

Wed, 09 Nov 2011 14:28:58 -0500

List of Expiring Federal Tax Provisions

2010-2020

I. FEDERAL TAX PROVISIONS² EXPIRING 2010-2020 A. Expiring in 2010	Expiration Date
1. First-time homebuyer credit	4/30/10
2. Sixty-five percent subsidy for payment of COBRA health care coverage continuation premiums	5/31/10
3. Alternative motor vehicle credit for advanced lean burn technology motor vehicles and qualified hybrid motor vehicles that are passenger automobiles or light trucks	12/31/10
4. Alternative motor vehicle credit for qualified alternative fuel vehicles	12/31/10
5. Alternative fuel vehicle refueling property - increase in credit rate and credit	12/31/10
6. Making work pay credit	12/31/10
7. General business credits of eligible small businesses not subject to the alternative minimum tax	12/31/10
8. General business credits of eligible small businesses carried back five years)	12/31/10
9. Work opportunity tax credit targeted group status for unemployed veterans and disconnected youth	12/31/10
10. Qualified school construction bonds - allocation of bond authority	12/31/10
11. Authority to issue Build America Bonds	12/31/10
12. Modification of AMT limitations on tax- exempt bonds	12/31/10
13. Deferral and ratable inclusion of income from business debt discharged by reacquisition	12/31/10
14. Exclusion from income for benefits provided to volunteer firefighters and emergency medical	12/31/10
15. Qualified mortgage bonds for refinancing of subprime loans	12/31/10
16. Expansion of availability of industrial development bonds to facilities manufacturing intangible property	12/31/10
17. Volume cap carryforward and set-aside for private activity bonds for housing	12/31/10
18. Bonds guaranteed by Federal Home Loan banks eligible for treatment as tax-exempt bonds	12/31/10
19. Deduction for health insurance costs in computing self-employment taxes	12/31/10
20. Five-year amortization of music and music	12/31/10
21. Natural gas distribution lines treated as 15- year	12/31/10
22. Increase in amount allowed as a deduction for start-up expenditures	12/31/10
23. Modification of small issuer exception to tax-exempt interest allocation rules for financial	12/31/10
24. De minimis safe harbor exception for tax- exempt interest expense of financial institutions	12/31/10
25. Special rule for long-term contract accounting - allocation of bonus depreciation	12/31/10
26. Computer technology and equipment allowed as a qualified higher education expense for section 529	12/31/10
27. Authority to issue recovery zone economic development bonds and facility bonds	12/31/10
28. Payroll tax forgiveness for hiring unemployed	12/31/10
29. Business credit for retention of certain newly hired individuals	12/31/10
30. Qualifying therapeutic discovery project credit	12/31/10
31. Estate and gift tax regime for 2010
a. Election for executors of estates of decedents dying during 2010 to apply the 2010 EGTRRA estate tax and modified carryover basis rules	12/31/10
b. Zero rate for generation skipping transfer tax	12/31/10
c. $1 million gift tax exemption	12/31/10

B. Expiring in 2011	Expiration Date
1. Enhanced credit for health insurance costs of eligible individuals	2/13/11
2. Airport and Airway Trust Fund excise taxes:
a. All but 4.3 cents-per-gallon of taxes on noncommercial aviation kerosene and noncommercial aviation	3/31/11
b. Domestic and international air passenger ticket	3/31/11
c. Air cargo tax)	3/31/11
3. First-time homebuyer credit for individuals on qualified official extended duty outside the United States	4/30/11
4. FUTA surtax of 0.2 percent	6/30/11
5. Highway Trust Fund excise tax rates:
a. All but 4.3 cents-per-gallon of the taxes on highway gasoline, diesel fuel, kerosene, and alternative fuels (secs. 4041(a) and 4081(d)(1))	9/30/11
b. Reduced rate of tax on partially exempt methanol or ethanol fuel	9/30/11
c. Tax on retail sale of heavy highway vehicles	9/30/11
d. Tax on heavy truck tires	9/30/11
e. Annual use tax on heavy highway vehicles	9/30/11
6. Leaking Underground Storage Tank Trust Fund financing rate	9/30/11
7. Credit for certain nonbusiness energy property	12/31/11
8. Personal tax credits allowed against regular tax and AMT	12/31/11
9. Credit for electric drive motorcycles, three-wheeled vehicles, and low-speed vehicles	12/31/11
10. Conversion credit for plug-in electric	12/31/11
11. Alternative fuel vehicle refueling property (non-hydrogen refueling property)	12/31/11
12. Expansion of adoption credit and adoption assistance programs	12/31/11
13. Incentives for alcohol fuels
a. Alcohol fuels income tax credit (alcohol fuel, alcohol used to produce a qualified mixture, and small ethanol producers)	12/31/11
b. Alcohol fuel mixture excise tax credit and outlay payments	12/31/11
14. Incentives for biodiesel and renewable diesel:
a. Income tax credits for biodiesel fuel, biodiesel used to produce a qualified mixture, and small agri-biodiesel producers.	12/31/11
b. Income tax credits for renewable diesel fuel and renewable diesel used to produce a qualified mixture.	12/31/11
c. Excise tax credits and outlay payments for biodiesel fuel mixtures.	12/31/11
d. Excise tax credits and outlay payments for renewable diesel fuel mixtures	12/31/11
15. Tax credit for research and experimentation expenses	12/31/11
16. Placed-in-service date for facilities eligible to claim the refined coal production credit (other than refined coal facilities that produce steel industry fuel)	12/31/11
17. Indian employment tax credit	12/31/11
18. New markets tax credit	12/31/11
19. Credit for certain expenditures for maintaining railroad tracks	12/31/11
20. Credit for construction of new energy efficient	12/31/11
21. Credit for energy efficient appliances	12/31/11
22. Mine rescue team training credit	12/31/11
23. Employer wage credit for activated military reservists)	12/31/11
24. Grants for specified energy property in lieu of tax	12/31/11
25. Work opportunity tax credit	12/31/11
26. Qualified zone academy bonds - allocation of bond limitation	12/31/11
27. Increased AMT exemption amount	12/31/11
28. Deduction for certain expenses of elementary and secondary school teachers	12/31/11
29. Parity for exclusion from income for employer-provided mass transit and parking benefits	12/31/11
30. Treatment of military basic housing allowances under low-income housing credit	12/31/11
31. Premiums for mortgage insurance deductible as interest that is qualified residence interest	12/31/11
32. Deduction for State and local general sales taxes	12/31/11
33. 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements	12/31/11
34. Seven-year recovery period for motorsports entertainment complexes	12/31/11
35. Accelerated depreciation for business property on an Indian reservation	12/31/11
36. Additional first-year depreciation for 100 percent of basis of qualified property	12/31/11
37. Special rules for contributions of capital gain real property made for conservation purposes	12/31/11
38. Enhanced charitable deduction for contributions of food inventory	12/31/11
39. Enhanced charitable deduction for contributions of book inventories to public schools	12/31/11
40. Enhanced charitable deduction for corporate contributions of computer equipment for educational purposes	12/31/11
41. Increase in expensing to $500,000/$2,000,000 and expansion of definition of section 179 property	12/31/11
42. Election to expense advanced mine safety	12/31/11
43. Special expensing rules for certain film and television productions	12/31/11
44. Expensing of “brownfields” environmental remediation costs	12/31/11
45. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico	12/31/11
46. Above-the-line deduction for qualified tuition and related expenses	12/31/11
47. Tax-free distributions from individual retirement plans for charitable purposes	12/31/11
48. Special rule for sales or dispositions to implement Federal Energy Regulatory Commission (“FERC”) or State electric restructuring policy	12/31/11
49. Modification of tax treatment of certain payments to controlling exempt organizations	12/31/11
50. Suspension of 100 percent-of-net-income limitation on percentage depletion for oil and gas from marginal wells	12/31/11
51. Treatment of certain dividends of regulated investment companies (“RICs”)	12/31/11
52. RIC qualified investment entity treatment under FIRPTA	12/31/11
53. Exceptions under subpart F for active financing income	12/31/11
54. Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules	12/31/11
55. Special rules for qualified small business stock	12/31/11
56. Basis adjustment to stock of S corporations making charitable contributions of property	12/31/11
57. Reduction in S corporation recognition period for built-in gains tax	12/31/11
58. Empowerment zone tax incentives:
a. Designation of an empowerment zone and of additional empowerment zones	12/31/11
b. Increased exclusion of gain (attributable to periods through 12/31/16) on the sale of qualified business stock of an empowerment zone business	12/31/11
c. Empowerment zone tax-exempt bonds	12/31/11
d. Empowerment zone employment credit	12/31/11
e. Increased expensing under sec. 179	12/31/11
f. Nonrecognition of gain on rollover of empowerment zone investments	12/31/11
59. Tax incentives for investment in the District of Columbia (“DC”):
a. Designation of DC Zone, employment tax credit, and additional expensing	12/31/11
b. DC Zone tax-exempt bonds	12/31/11
c. Acquisition date for eligibility for zero percent capital gains rate for investment in DC for gains through 12/31/	12/31/11
d. Tax credit for first-time DC homebuyers	12/31/11
60. Definition of gross estate for RIC stock owned by a nonresident not a citizen of the United States	12/31/11
61. Disclosure of prisoner return information to certain prison officials	12/31/11
62. Incentives for alternative fuel and alternative fuel mixtures (other than liquefied hydrogen):
a. Excise tax credits and outlay payments for alternative fuel	12/31/11
b. Excise tax credits and outlay payments for alternative fuel mixtures	12/31/11
63. Temporary increase in limit on cover over of rum excise tax revenues (from $10.50 to $13.25 per proof gallon) to Puerto Rico and the Virgin Islands	12/31/11
64. American Samoa economic development credit	12/31/11
65. Temporary payroll tax cut	12/31/11

C. Provisions Expiring in 2012	Expiration Date
1. Qualified green buildings and sustainable design project bonds	9/30/12
2. Increase of the size of 15 percent rate bracket for married filers to double that of unmarried filers	12/31/12
3. Reduced capital gain rates for individuals	12/31/12
4. Dividends of individuals taxed at capital gain rates	12/31/12
5. Ten percent individual income tax rate	12/31/12
6. Reduction in other individual income tax rates - size of 15 percent rate bracket modified to reflect 10 percent rate, and 28 percent, 31 percent, 36 percent and 39.6 percent rates are reduced to 25 percent, 28 percent, 33 percent and 35 percent, respectively	12/31/12
7. Dependent care credit - increase of dollar limit on creditable expenses from $2,400 to $3,000 ($4,800 to $6,000 for two or more children), increase of applicable credit percentage from 30 to 35 percent, increase of beginning point of phase-out range from $10,000 to $15,000	12/31/12
8. Adoption credit and adoption assistance exclusion - increase to $10,000 for maximum credit and maximum exclusion, special needs adoptions deemed to have $10,000 eligible expenses for purposes of credit and exclusion, increase the beginning and ending points of phase-out range for credit and exclusion, allow the credit against AMT	12/31/12
9. Child credit - increase from $500 to $1,000, expand eligibility for refundable portion of the credit, AMT relief, provide that child credit not treated as income or resources for purposes of benefit or assistance programs financed in whole or in part with Federal funds	12/31/12
10. Refundable child credit floor amount at $3,	12/31/12
11. American opportunity tax credit	12/31/12
12. Earned income tax credit (“EITC”) - increase in the beginning point of the phase-out range for joint returns, modification of EITC treatment of amounts not includible in income, repeal of reduction of EITC for AMT liability, expansion of math error authority	12/31/12
13. Earned income tax credit:
a. Credit percentage of 45 percent for three or more qualifying children	12/31/12
b. Phaseout threshold for marriage penalty relief	12/31/12
14. Cellulosic biofuel producer credit	12/31/12
15. Placed-in-service date for wind facilities eligible to claim electricity production credit	12/31/12
16. Credit for production of Indian coal	12/31/12
17. Credit for employer-provided child care	12/31/12
18. Election to claim the energy credit in lieu of the electricity production credit for wind facilities	12/31/12
19. Credit for prior year minimum tax liability made refundable after period of years	12/31/12
20. Increase of the standard deduction for married filers to double that of unmarried filers	12/31/12
21. Repeal of overall limitation on itemized deductions (the “Pease limitation	12/31/12
22. Discharge of indebtedness on principal residence excluded from gross income of individuals	12/31/12
23. Elimination of tax on awards under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program	12/31/12
24. Employer-provided educational assistance - expansion to graduate education and making the exclusion permanent	12/31/12
25. Tax-exempt bonds for educational facilities - increase in amount of bonds qualifying for small-issuer arbitrage rebate exception, expansion of tax-exempt bond treatment to public school facilities	12/31/12
26. Repeal of the personal exemptions phaseouts (“PEP”) for high income taxpayers	12/31/12
27. Additional first-year depreciation for 50 percent of basis of qualified property	12/31/12
28. Election to accelerate AMT credits in lieu of additional first-year depreciation	12/31/12
29. Special depreciation allowance for cellulosic biofuel plant property	12/31/12
30. Increase in dollar limitations for expensing to $125,000/500,000	12/31/12
31. Student loan interest deduction - increase and indexation for inflation of the phaseout ranges, repeal of the limit on the number of months that interest payments are deductible, repeal of the rule that voluntary payments of interest are not deductible	12/31/12
32. Repeal of collapsible corporation	12/31/12
33. Education IRAs (Coverdell education savings accounts) - increase of maximum annual contribution from $500 to $2,000, expansion of definition of qualified education expenses, increase in the size of the phase-out range for married filers to double that of unmarried filers, provision of special needs beneficiary rules, contributions by corporations and other entities, and contributions until April 15th, permitted	12/31/12
34. Reduced rates under accumulated earnings tax and personal holding company tax	12/31/12
35. Modified tax treatment of electing Alaska Native Settlement Trusts and their beneficiaries	12/31/12
36. Estate, gift, and generation skipping transfer tax provisions
a. Reduction in the maximum estate and gift tax rate to 35 percent	12/31/12
b. Modifications of estate and gift taxes to reflect differences in credit resulting from different tax rates	12/31/12
c. Increase in estate and gift tax exemption to $5 million (indexed for inflation in years after 2011)	12/31/12
d. “Portability” rules permitting a surviving spouse to use the unused estate and gift tax exemptions of the last deceased spouse	12/31/12
e. Estate tax deduction for State death taxes paid	12/31/12
f. Expansion and clarification of estate tax conservation easement rules	12/31/12
g. Repeal of the qualified family-owned business deduction	12/31/12
h. Modifications to generation-skipping transfer tax rules regarding deemed allocations of exemption to certain transfers in trust, severing of trusts, valuation, and relief for late elections	12/31/12
i. Modifications to estate tax installment payment rules	12/31/12
37. Refunds disregarded in the administration of Federal programs and Federally assisted programs	12/31/12

D. Expiring in 2013	Expiration Date
1. Determination of low-income housing credit rate	12/31/13
2. Placed-in-service date for facilities (other than wind facilities) eligible to claim the electricity production credit	12/31/13
3. Election to claim the energy credit in lieu of the electricity production credit for renewable power facilities other than wind facilities	12/31/13
4. Three-year depreciation for race horses two years old or younger	12/31/13
5. Placed-in-service date for partial expensing of certain refinery property	12/31/13
6. Energy efficient commercial buildings deduction	12/31/13
7. Transfer of excess pension assets to retiree health accounts	12/31/13

E. Expiring in 2014	Expiration Date
1. Incentives for alternative fuel and alternative fuel mixtures involving liquefied hydrogen:
a. Excise tax credits and outlay payments for liquefied hydrogen	9/30/14
b. Excise tax credits and outlay payments for liquefied hydrogen fuel mixtures (	9/30/14
2. Alternative motor vehicle credit for qualified fuel cell motor vehicles	12/31/14
3. Alternative fuel vehicle refueling property (hydrogen refueling property)	12/31/14
4. Automatic amortization extension for multiemployer defined benefit pension plans	12/31/14
5. Additional funding rules for multiemployer defined benefit pension plans in endangered or critical status	12/31/14
6. Deemed approval of adoption, use or cessation of shortfall funding method for multiemployer defined benefit pension plans	12/31/14

F. Expiring in 2016	Expiration Date
1. Credit for residential energy property)	12/31/16
2. Increased credit for business solar energy property	12/31/16
3. Credit for hybrid solar lighting systems	12/31/16
4. Energy credit for geothermal heat pump property, small wind property, and combined heat and power property	12/31/16
5. Credit for business installation of qualified fuel cells and stationary microturbine power plants	12/31/16

G. Expiring in 2017

Expiration Date

1. Oil Spill Liability Trust Fund financing rate

12/31/17

H. Expiring in 2018

Expiration Date

1. Black Lung Disability Trust Fund: increase in amount of excise tax on coal

12/31/18

I.Expiring in 2020

Expiration Date

1. Placed-in-service date for eligibility for the credit for production from certified advanced nuclear power facilities

12/31/20

II. TEMPORARY DISASTER RELIEF FEDERAL TAX PROVISIONS EXPIRING 2010-2013 A. Temporary Disaster Relief Federal Tax Provisions Expiring in 2010	Expiration Date
1. Acceleration of income tax benefits for charitable cash contributions for relief of victims of earthquake in Haiti	2/28/10
2. Advance refunding of certain tax-exempt bonds	12/31/10
3. Treatment of residences located in the Gulf Opportunity Zone, the Rita GO Zone, or the Wilma GO Zone as targeted area residences for purposes of mortgage revenue bond rules	12/31/10
4. Waiver of first-time homebuyer rule for qualified Hurricane Katrina residences financed with mortgage revenue bonds	12/31/10
5. Tax relief for areas damaged by 2008 Midwestern severe storms, tornados and flooding
a. Low-income housing tax credit relief	12/31/10
b. Expensing for demolition and clean-up costs	12/31/10
c. Extension of expensing for environmental remediation costs	12/31/10
d. Special rules for mortgage revenue bonds	12/31/10
e. Treatment of net operating losses attributable to disaster losses	12/31/10
6. Low-income housing tax relief for areas damaged by Hurricane Ike in 2008	12/31/10

B. Temporary Disaster Relief Federal Tax Provisions Expiring in 2011 Provision (Code section)	Expiration Date
1. New York Liberty Zone: tax-exempt bond financing	12/31/11
2. Tax-exempt bond financing for the Gulf Opportunity Zone	12/31/11
3. Low-income housing credit additional housing credit dollar amount for the Gulf Opportunity Zone and certain programmatic expansions for the Gulf Opportunity Zone, the Rita GO Zone, and the Wilma GO Zone	12/31/11
4. Placed-in-service date for additional depreciation for specified Gulf Opportunity Zone extension property	12/31/11
5. Increase in rehabilitation credit for structures located in the Gulf Opportunity Zone	12/31/11
6. Increase in rehabilitation credit for areas damaged by 2008 Midwestern severe storms, tornados and flooding	12/31/11

C. Temporary Disaster Relief Federal Tax Provisions Expiring in 2012

Expiration Date

1. Tax-exempt bond financing rules for areas damaged by 2008 Midwestern severe storms, tornados and flooding

12/31/12

2. Tax-exempt bond financing rules for areas damaged by Hurricane Ike in 2008

12/31/12

D. Temporary Disaster Relief Federal Tax Provisions Expiring in 2013

Expiration Date

1. Extension of replacement period for non-recognition of gain for areas damaged by 2008 Midwestern severe storms, tornados and flooding

12/31/13