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Dion Gouws CPA

619.537.9174
Tax advantaged asset management stocks and bonds 401k

CPA San Diego Income tax preparation san diego la jolla del mar cpa estate planning roth IRA conversion life insurance investment planningThis San Diego firm specialty areas are Income Tax, Auditing and Business Assurance services.

 

Outlines of public accounting services can be found by scrolling the services table by clicking here. Detailed page long information can be found on service specific pages from the menu's above.


The income tax practice area focus of the firm is on tax preparation, IRS trouble tax planning, pre-tax court representation, IRS audit representation, offers in compromise, filing of back taxes and the implementation of various tax saving strategies and determining estimated taxes.

 

The full range of tax preparation and planning services are offered for hedge funds and day traders. Schedule D's are completed through a direct broker interface and can also be done for other CPA firms and tax practitioners on a cost efficient basis. Contact us if you need assistance with trader tax status, mark to market elections or the setting up of entities and compliance audits. Whether you trade stocks or commodities there are excellent tax saving strategies and an idea called tax loss insurance that you should find out about.


If you are being audited by the IRS or has the IRS levied your wages or filed a lien then contact us today, we can help. Don't ignore it, it does not go away. Levies and garnishments can be lifted immediately after you receive notification from your bank but must be acted upon correctly and within a few days. Contact this firm today, we will begin to deal with it immediately.


A full range of business support services is provided by this firm to tax clients and includes bookkeeping, QuickBooks, state and federal filings and payroll.

 

In our practice and during tax planning a need often arises for corporate tax planning. One of the strategies we employ is that of corporate offered health insurance. We can also assist with individual health insurance coverage. In order to assist those that do require this and are in need of a broker we offer a cost competitive electronic quotation and enrollment procedure.

Our Clients

Clients of this firm include tax attorneys, physicians, CEO's, insurance companies, construction companies, the auto industry, academia, musicians, not-for-profit organizations, real estate investors, jewelers, designers, veterinarians, stock market traders and day traders, analysts & hedge funds, military personnel, retirees and students to name a few. Client tax liabilities cover the spectrum resulting from millions of dollars of earned income to receiving earned income credits from the IRS. We service the San Diego area.


As John Maynard Keynes put it " The avoidance of taxes is the only intellectual pursuit that still carries any reward."  Proactive tax planning is a necessary first step to reducing taxes, you spend up to 45% of your annual income on income taxes, shouldn't you be taking it seriously? Every taxpayer should pay their share of income taxes but not more due to poor planning in terms of asset management and investment strategy or not deducting allowable deductions. 


I am pleased to offer you a free initial consultation.  Just call or email for an appointment. Of course, there is no obligation if you decide not to engage the services of my firm and the same applies to the firm client relationship. Call today 858-222-0312 to schedule a consultation or contact us electronically. 


The preparation of a tax return is in many cases a simple matter of entering data into a computer program. Proper tax preparation is truly an intellectual pursuit and that is where the professionals such as certified public accountants distinguish themselves. CPA's look at preparation holistically, they view planning as a necessary first step in the tax preparation process.

Specialized Tax Services for the High Net Worth Individual

For the high net worth individual, the accredited or super accredited investor, we offer a unique program approach to tax, estate tax and asset protection planning and preparation. Programs last for approximately 5 days with a focus on wealth preservation. Does your estate tax planning strategy effectively remove your assets from your estate? Are you optimally utilizing privately placed  life insurance and gifting strategies?

 

We serve select individuals, families and business owners as well as their pension and retirement plans. For these clients we address 10 solutions specifically designed for comprehensive wealth care success. Through this systematic approach we help you attain financial peace of mind by creating tax advantaged wealth creation, preservation and distribution strategies. As CPA's we are able to offer wide ranging client specific wealth management solutions.

IRS Trouble?

Are you in trouble with the IRS? Are you being audited by the IRS or having your wages levied by the IRS or have a lien filed by the IRS. Did you know that you may be able to settle outstanding tax debts for pennies in the dollar? Have you not filed for many years? Did you forget to take a deduction a few years ago? Call today, there may very well be an easy solution to your problem, let us deal with the IRS on your behalf and stop worrying about it.

 

Below under current topics you will find references to services offered in client based relationships, areas of interest and frequently encountered questions as well as requests for information. Also covered are relevant news topics as they pertain to the firm client base.


If you have any questions feel free to call at 619.537.9174.

 

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Services Table

If you are here for something specific here is a table of current services.

   

TAX PREPARATION  SERVICES

IRS REPRESENTATION  SERVICES

TAX PLANNING SERVICES

GENERAL TAX SERVICES

BUSINESS SERVICES

Individuals - 1040, 1040X, etc.
Offers in compromise
Personal and corporate tax planning
Overdue Returns
Company and Entity Formation
Partnerships - 1065, 1065X
Audit Representation
Traders and hedge Funds
Tax Planning Tips 
Bookkeeping 
Corporate - 1120, 1120s, 1120X
Extensions, Elections and all miscellaneous form preparations and filings
Business and entity structuring and formation
Tax Planning Strategies
Strategic Planning
Not-for-profit  990, 990EZ
Assistance with the removal of liens and lifting of levies
Trust and estate planning
Tax Organizer
QuickBooks  
Fiduciary (Trusts and Estates)  1041 etc.
Extensions, Elections and all miscellaneous form preparations and filings
Trust entity formation facilitation
Tax for the Accredited Investor
Payroll          
Amended tax returns
Tax accounting
Investment tax Planning
Employer returns such as 940
Tax strategy planning
Pension Plans
Income tax planning
Tax strategy implementation 
401k plans
Delinquent Taxes and Late Filings
Asset protection planning
Roth IRA's
Roth Conversions
Privately Placed Life Insurance Strategies
Roth Conversions
5500
Offshore trust formations
Life Insurance Estate Planning
5500EZ
Life Insurance Trusts
ILIT
Hedge Funds
Charitable Remainder Trusts CRTS & CRUTS
Business Consulting
Tax audit representation
Health Insurance
IRA rollovers
Income Tax Withholding estimates and other tax estimates

 

To go back to where you were click here.

 

 

ROTH IRA's and conversions

What's New for 2008

Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 is generally the lesser of:

  • $5,000, or

  • Your taxable compensation for the year.

If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 is generally the lesser of:

  • $6,000, or

  • Your taxable compensation for the year.

However, if your modified AGI is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in this chapter.

Modified AGI limit for Roth IRA contributions increased. For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations.

  • Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $159,000. You cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.

  • Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2008 and your modified AGI is at least $101,000. You cannot make a Roth IRA contribution if your modified AGI is $116,000 or more.

  • Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

See Can You Contribute to a Roth IRA? in this chapter.

Rollovers from other retirement plans. Beginning in 2008, you can rollover amounts from a qualified retirement plan to a Roth IRA. For more information, see Rollover From Employer's Plan Into a Roth IRA in this chapter.

Economic stimulus payments. Economic stimulus payments directly deposited in your Roth IRA in 2008 may be withdrawn tax-free and penalty-free. See Tax-free withdrawals of economic stimulus payments under Are Distributions Taxable? later.

Military death gratuities and servicemembers' group life insurance (SGLI) payments. If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you may roll over some or all of the amount received to your Roth IRA. For more information, see Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments in this chapter.

Rollover of Exxon Valdez settlement income. If you received qualified settlement income in connection with the Exxon Valdez litigation, you may roll over the amount received, or part of the amount received, to your Roth IRA. For more information, see Rollover of Exxon Valdez Settlement Income in this chapter.

Rollover of airline payments. If you are a qualified airline employee, you may contribute any portion of an airline payment paid to you by a commercial passenger airline carrier under a Federal bankruptcy court order to your Roth IRA. For more information, see Rollover of Airline Payments in this chapter.

What's New for 2009

Modified AGI limits for Roth IRA contributions increased. For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.

  • Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $166,000. You cannot make a Roth IRA contribution if your modified AGI is $176,000 or more.

  • Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2009 and your modified AGI is at least $105,000. You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more.

  • Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

See Can You Contribute to a Roth IRA ? in this chapter.

Temporary waiver of required minimum distribution rules. No minimum distribution is required from your Roth IRA for 2009. See Temporary waiver of required minimum distribution rules for 2009 in this chapter.

Reminder

Deemed IRAs. For plan years beginning after 2002, a qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA.For this purpose, a “qualified employer plan” includes:

  • A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan),

  • A qualified employee annuity plan (section 403(a) plan),

  • A tax-sheltered annuity plan (section 403(b) plan), and

  • A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.

Introduction

Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA.

Contributions not reported.   You do not report Roth IRA contributions on your return.

What Is a Roth IRA?

A Roth IRA is an individual retirement plan that, except as explained in this chapter, is subject to the rules that apply to a traditional IRA (defined below). It can be either an account or an annuity. Individual retirement accounts and annuities are described in chapter 1 under How Can a Traditional IRA Be Set Up.

To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up. A deemed IRA can be a Roth IRA, but neither a SEP IRA nor a SIMPLE IRA can be designated as a Roth IRA.

Unlike a traditional IRA, you cannot deduct contributions to a Roth IRA. But, if you satisfy the requirements, qualified distributions (discussed later) are tax free. Contributions can be made to your Roth IRA after you reach age 70½ and you can leave amounts in your Roth IRA as long as you live.

Traditional IRA.   A traditional IRA is any IRA that is not a Roth IRA or SIMPLE IRA. Traditional IRAs are discussed in chapter 1.

When Can a Roth IRA Be Set Up?

You can set up a Roth IRA at any time. However, the time for making contributions for any year is limited. See When Can You Make Contributions , later under Can You Contribute to a Roth IRA.

Can You Contribute to a Roth IRA?

Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:

  • $169,000 for married filing jointly or qualifying widow(er),

  • $116,000 for single, head of household, or married filing separately and you did not live with your spouse at any time during the year, and

  • $10,000 for married filing separately and you lived with your spouse at any time during the year.

You may be eligible to claim a credit for contributions to your Roth IRA. For more information, see chapter 5.
Is there an age limit for contributions?   Contributions can be made to your Roth IRA regardless of your age.

Can you contribute to a Roth IRA for your spouse?   You can contribute to a Roth IRA for your spouse provided the contributions satisfy the spousal IRA limit discussed in chapter 1 under How Much Can Be Contributed, you file jointly, and your modified AGI is less than $169,000.

Compensation.   Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, nontaxable combat pay, and taxable alimony and separate maintenance payments. For more information, see What Is Compensation? under Who Can Set Up a Traditional IRA? in chapter 1.

Modified AGI.   Your modified AGI for Roth IRA purposes is your adjusted gross income (AGI) as shown on your return modified as follows.
  1. Subtracting the following.

    1. Roth IRA conversions included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Conversions are discussed under Can You Move Amounts Into a Roth IRA, later.

    2. Roth IRA rollovers from qualified retirement plans included on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

    3. Minimum required distributions from IRAs (for conversions and rollovers from qualified retirement plans only).

  2. Add the following deductions and exclusions:

    1. Traditional IRA deduction,

    2. Student loan interest deduction,

    3. Tuition and fees deduction,

    4. Domestic production activities deduction,

    5. Foreign earned income exclusion,

    6. Foreign housing exclusion or deduction,

    7. Exclusion of qualified bond interest shown on Form 8815, and

    8. Exclusion of employer-provided adoption benefits shown on Form 8839.

  You can use Worksheet 2-1 to figure your modified AGI.

Do not subtract conversion income or minimum required distributions from IRAs when figuring your other AGI-based phaseouts and taxable income, such as your deduction for medical and dental expenses. Subtract them from AGI only for the purpose of figuring your modified AGI for Roth IRA purposes.

How Much Can Be Contributed?

The contribution limit for Roth IRAs generally depends on whether contributions are made only to Roth IRAs or to both traditional IRAs and Roth IRAs.

Table 2-1. Effect of Modified AGI on Roth IRA Contribution This table shows whether your contribution to a Roth IRA is affected by the amount of your modified adjusted gross income (modified AGI).

IF you have taxable compensation
and your filing status is ...
AND your modified AGI is ... THEN ...
married filing jointly or
qualifying widow(er)
less than $159,000 you can contribute up to $5,000 ($6,000 if you are age 50 or older) as explained under How Much Can Be Contributed .
at least $159,000
but less than $169,000
the amount you can contribute is reduced as explained under Contribution limit reduced .
$169,000 or more you cannot contribute to a Roth IRA.
married filing separately and
you lived with your spouse at any
time during the year
zero (-0-) you can contribute up to $5,000 ($6,000 if you are age 50 or older) as explained under How Much Can Be Contributed .
more than zero (-0-)
but less than $10,000
the amount you can contribute is reduced as explained under Contribution limit reduced .
$10,000 or more you cannot contribute to a Roth IRA.
single,
head of household,
or married filing separately and
you did not live with your spouse
at any time during the year
less than $101,000 you can contribute up to $5,000 ($6,000 if you are age 50 or older) as explained under How Much Can Be Contributed .
at least $101,000
but less than $116,000
the amount you can contribute is reduced as explained under Contribution limit reduced .
$116,000 or more you cannot contribute to a Roth IRA.

Note. You may be able to contribute up to $8,000 if you participated in a 401(k) plan maintained by an employer who went into bankruptcy in an earlier year. See Catch-up contributions in certain employer bankruptcies , later.



For 2009, the amounts in Table 2-1 increase. For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.

  • Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $166,000. You cannot make a Roth IRA contribution if your modified AGI is $176,000 or more.

  • Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

  • Your filing status is different than either of those described above and your modified AGI is at least $105,000. You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more.

Roth IRAs only.   If contributions are made only to Roth IRAs, your contribution limit generally is the lesser of:
  • $5,000 ($6,000 if you are age 50 or older), or

  • Your taxable compensation.

  This limit may be increased to $8,000 if you participated in a 401(k) plan maintained by an employer who went into bankruptcy in an earlier year. For more information, see Catch-up contributions in certain employer bankruptcies later.

  However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced .

Roth IRAs and traditional IRAs.   If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.

  This means that your contribution limit is the lesser of:
  • $5,000 ($6,000 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or

  • Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.

  This limit may be increased to $8,000 if you participated in a 401(k) plan maintained by an employer who went into bankruptcy in an earlier year. For more information, see Catch-up contributions in certain employer bankruptcies later.

  However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained later under Contribution limit reduced .

  Simplified employee pensions (SEPs) are discussed in Publication 560. Savings incentive match plans for employees (SIMPLEs) are discussed in chapter 3.

Catch-up contributions in certain employer bankruptcies.   If you participated in a 401(k) plan and the employer who maintained the plan went into bankruptcy, you may be able to contribute an additional $3,000 to your Roth IRA. For this to apply, the following conditions must be met.
  • You must have been a participant in a 401(k) plan under which the employer matched at least 50% of your contributions to the plan with stock of the company.

  • You must have been a participant in the 401(k) plan 6 months before the employer went into bankruptcy.

  • The employer (or a controlling corporation) must have been a debtor in a bankruptcy case in an earlier year.

  • The employer (or any other person) must have been subject to indictment or conviction based on business transactions related to the bankruptcy.

If you choose to make these catch-up contributions, the higher contribution limits for individuals who are age 50 or older do not apply. The most that can be contributed to your Roth IRA is the smaller of $8,000 or your taxable compensation for the year.
Repayment of reservist, hurricane, disaster recovery assistance, and recovery assistance distributions.   You can repay qualified reservist, qualified hurricane, qualified disaster recovery assistance, and qualified recovery assistance distributions even if the repayments would cause your total contributions to the Roth IRA to be more than the general limit on contributions. However, the total repayments cannot be more than the amount of your distribution.

Note.

If you make repayments of qualified reservist distributions to a Roth IRA, increase your basis in the Roth IRA by the amount of the repayment. If you make repayments of qualified hurricane, qualified disaster recovery assistance, or qualified recovery assistance distributions to a Roth IRA, the repayment is first considered to be a repayment of earnings. Any repayments of qualified hurricane, qualified disaster recovery assistance, or qualified recovery assistance distributions in excess of earnings will increase your basis in the Roth IRA by the amount of the repayment in excess of earnings. For more information, see Qualified reservist repayments under How Much Can Be Contributed? in chapter 1 and chapter 4, Disaster-Related Relief .

Contribution limit reduced.   If your modified AGI is above a certain amount, your contribution limit is gradually reduced. Use Table 2-1 to determine if this reduction applies to you.

Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes.

1. Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36 1.  
2. Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA, a rollover from a qualified retirement plan to a Roth IRA, and a minimum required distribution from an IRA (for conversions and rollovers from qualified retirement plans only) 2.  
3. Subtract line 2 from line 1 3.  
4. Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31 4.  
5. Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 32 5.  
6. Enter any tuition and fees deduction from Form 1040, line 34 or Form 1040A, line 19 6.  
7. Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33 7.  
8. Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 8.  
9. Enter any foreign housing deduction from Form 2555, line 50 9.  
10. Enter any excludable qualified savings bond interest from Form 8815, line 14 10.  
11. Enter any excluded employer-provided adoption benefits from Form 8839, line 30 11.  
12. Add the amounts on lines 3 through 11 12.  
13. Enter:
  • $169,000 if married filing jointly or qualifying widow(er),

  • $10,000 if married filing separately and you lived with your spouse at any time during the year, or

  • $116,000 for all others

13.  
Is the amount on line 12 more than the amount on line 13?
If yes, see the note below.
If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes.
   
  Note. If the amount on line 12 is more than the amount on line 13 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. When figuring your modified AGI for conversion purposes, refigure your AGI without taking into account any income from conversions or minimum required distributions from IRAs. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to list item 2 under Modified AGI earlier or line 3 above in Worksheet 2-1 to refigure your modified AGI. If you do not have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 12 above.
Figuring the reduction.   If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.
  1. Start with your modified AGI.

  2. Subtract from the amount in (1):

    1. $159,000 if filing a joint return or qualifying widow(er),

    2. $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or

    3. $101,000 for all other individuals.

  3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).

  4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).

  5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.

  You can use Worksheet 2-2 to figure the reduction.

Worksheet 2-2. Determining Your Reduced Roth IRA Contribution Limit

Before using this worksheet, check Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it is, use this worksheet to determine how much it is reduced.

1. Enter your modified AGI for Roth IRA purposes 1.  
2. Enter:
  • $159,000 if filing a joint return or qualifying widow(er),

  • $-0- if married filing a separate return and you lived with your spouse at any time in 2008, or

  • $101,000 for all others

2.  
3. Subtract line 2 from line 1 3.  
4. Enter:
  • $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or

  • $15,000 for all others

4.  
5. Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000 5.  
6. Enter the lesser of:
  • $5,000 ($6,000 if you are age 50 or older, or $8,000 for certain employer bankruptcies), or

  • Your taxable compensation

6.  
7. Multiply line 5 by line 6 7.  
8. Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200 8.  
9. Enter contributions for the year to other IRAs 9.  
10. Subtract line 9 from line 6 10.  
11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit 11.  

Round your reduced contribution limit up to the nearest $10. If your reduced contribution limit is more than $0, but less than $200, increase the limit to $200.

Example.

You are a 45-year-old, single individual with taxable compensation of $113,000. You want to make the maximum allowable contribution to your Roth IRA for 2008. Your modified AGI for 2008 is $102,000. You have not contributed to any traditional IRA, so the maximum contribution limit before the modified AGI reduction is $5,000. Using the steps described earlier, you figure your reduced Roth IRA contribution of $4,670 as shown on the following worksheet.


Worksheet 2-2. Example—Illustrated

Before using this worksheet, check Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it is, use this worksheet to determine how much it is reduced.

1. Enter your modified AGI for Roth IRA purposes 1. 102,000
2. Enter:
  • $159,000 if filing a joint return or qualifying widow(er),

  • $-0- if married filing a separate return and you lived with your spouse at any time in 2008, or

  • $101,000 for all others

2. 101,000
3. Subtract line 2 from line 1 3. 1,000
4. Enter:
  • $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or

  • $15,000 for all others

4. 15,000
5. Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000 5. .067
6. Enter the lesser of:
  • $5,000 ($6,000 if you are age 50 or older, or $8,000 for certain employer bankruptcies), or

  • Your taxable compensation

6. 5,000
7. Multiply line 5 by line 6 7. 335
8. Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200 8. 4,670
9. Enter contributions for the year to other IRAs 9. 0
10. Subtract line 9 from line 6 10. 5,000
11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit 11. 4,670

When Can You Make Contributions?

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions).

You can make contributions for 2008 by the due date (not including extensions) for filing your 2008 tax return. This means that most people can make contributions for 2008 by April 15, 2009.

What if You Contribute Too Much?

A 6% excise tax applies to any excess contribution to a Roth IRA.

Excess contributions.   These are the contributions to your Roth IRAs for a year that equal the total of:
  1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or properly converted from a traditional IRA or rolled over from a qualified retirement plan, as described later) that are more than your contribution limit for the year (explained earlier under How Much Can Be Contributed ), plus

  2. Any excess contributions for the preceding year, reduced by the total of:

    1. Any distributions out of your Roth IRAs for the year, plus

    2. Your contribution limit for the year minus your contributions to all your IRAs for the year.

Withdrawal of excess contributions.   For purposes of determining excess contributions, any contribution that is withdrawn on or before the due date (including extensions) for filing your tax return for the year is treated as an amount not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made.

Applying excess contributions.    If contributions to your Roth IRA for a year were more than the limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

Can You Move Amounts Into a Roth IRA?

You may be able to convert amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. You may be able to roll over amounts from a qualified retirement plan to a Roth IRA. You may be able to recharacterize contributions made to one IRA as having been made directly to a different IRA. You can roll amounts over from a designated Roth account or from one Roth IRA to another Roth IRA.

Conversions

You can convert a traditional IRA to a Roth IRA. The conversion is treated as a rollover, regardless of the conversion method used. Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. However, the 1-year waiting period does not apply.

Conversion methods.   You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways.
  • Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.

  • Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.

  • Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA.

Same trustee.   Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract.

More information.   For more information on conversions, see Converting From Any Traditional IRA Into a Roth IRA in chapter 1.

Rollover From Employer's Plan Into a Roth IRA

Prior to 2008, you could only roll over (convert) amounts from either a traditional, SEP, or SIMPLE IRA into a Roth IRA. Beginning in 2008, you can roll over into a Roth IRA all or part of an eligible rollover distribution your receive from your (or your deceased spouse's):

  • Employer's qualified pension, profit-sharing or stock bonus plan (including a 401(k) plan),

  • Annuity plan,

  • Tax-sheltered annuity plan (section 403(b) plan), or

  • Governmental deferred compensation plan (section 457 plan).

Any amount rolled over is subject to the same rules for converting a traditional IRA into a Roth IRA. See Converting From Any Traditional IRA Into a Roth IRA in chapter 1. Also, the rollover contribution must meet the rollover requirements that apply to the specific type of retirement plan.

Income.   You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid.

Example.

In July of 2008, you decide to roll over $50,000 from your 401(k) plan to your Roth IRA. You have no after-tax contributions. For 2008, you must include in income $50,000.

If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax.
Rollover methods.   You can roll over amounts from a qualified retirement plan to a Roth IRA in one of the following ways.
  • Rollover. You can receive a distribution from a qualified retirement plan and roll it over (contribute) to a Roth IRA within 60 days after the distribution. Since the distribution is paid directly to you, the payer generally must withhold 20% of it.

  • Direct rollover option. Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a Roth IRA. Generally, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the Roth IRA.

  For more information on eligible rollover distributions from qualified retirement plans and withholding, see Rollover From Employer's Plan Into an IRA in chapter 1.

How to report.   A rollover to a Roth IRA is not a tax-free distribution other than any after-tax contributions you made. Report a rollover from a qualified retirement plan to a Roth IRA on Form 1040, lines 16a and 16b; Form 1040A, lines 12a and 12b; or Form 1040NR, lines 17a and 17b.

  Enter the total amount of the distribution before income tax or deductions were withheld on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. This amount is shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b.

Military Death Gratuities and Servicemembers' Group Life Insurance (SGLI) Payments

If you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, you can contribute (roll over) all or part of the amount received to your Roth IRA. The contribution is treated as a qualified rollover contribution.

The amount you can roll over to your Roth IRA cannot exceed the total amount that you received reduced by any part of that amount that was contributed to a Coverdell ESA or another Roth IRA. Any military death gratuity or SGLI payment contributed to a Roth IRA is disregarded for purposes of the 1-year waiting period between rollovers.

The rollover must be completed before the end of the 1-year period beginning on the date you received the payment. However, if you received a military death gratuity or SGLI payment with respect to a death from injury that occurred after October 6, 2001, and before June 17, 2008, you have until June 17, 2009, to make the contribution to your Roth IRA.

The amount contributed to your Roth IRA is treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed.

Failed Conversions and Rollovers

If, when you converted amounts from a traditional IRA or SIMPLE IRA into a Roth IRA or when you rolled over amounts from a qualified retirement plan into a Roth IRA, you expected to have modified AGI of $100,000 or less and a filing status other than married filing separately, but your expectations did not come true, you have made a failed conversion or failed rollover.

Results of failed conversions and failed rollovers.   If the converted or rolled over amount (contribution) is not recharacterized (explained in chapter 1), the contribution will be treated as a regular contribution to the Roth IRA and subject to the following tax consequences.
  • A 6% excise tax per year will apply to any excess contribution not withdrawn from the Roth IRA.

  • The distributions from the traditional IRA or qualified retirement plan must be included in your gross income.

  • The 10% additional tax on early distributions may apply to any distribution.

How to avoid.   You must move the amount converted or rolled over (including all earnings from the date of conversion or roll over) into a traditional IRA by the due date (including extensions) for your tax return for the year during which you made the conversion or roll over to the Roth IRA. You do not have to include this distribution (withdrawal) in income.

Rollover From a Roth IRA

You can withdraw, tax free, all or part of the assets from one Roth IRA if you contribute them within 60 days to another Roth IRA. Most of the rules for rollovers, described in chapter 1 under Rollover From One IRA Into Another , apply to these rollovers. However, rollovers from retirement plans other than Roth IRAs are disregarded for purposes of the 1-year waiting period between rollovers.

A rollover from a Roth IRA to an employer retirement plan is not allowed.

A rollover from a designated Roth account can only be made to another designated Roth account or to a Roth IRA.

Rollover of Exxon Valdez Settlement Income

If you are a qualified taxpayer and you received qualified settlement income, you can contribute all or part of the amount received to an eligible retirement plan which includes a Roth IRA. The rules for contributing qualified settlement income to a Roth IRA are the same as the rules for contributing qualified settlement income to a traditional IRA with the following exception. Qualified settlement income that is contributed to a Roth IRA, or to a designated Roth account, will be:

  • Included in your taxable income for the year the qualified settlement income was received, and

  • Treated as part of your cost basis (investment in the contract) in the Roth IRA that is not taxable when distributed.

For more information, see Rollover of Exxon Valdez Settlement Income in chapter 1.

Rollover of Airline Payments

If you are a qualified airline employee, you may contribute any portion of an airline payment you receive to a Roth IRA. The contribution must be made within 180 days from the date you received the payment, or before June 23, 2009, whichever is later. The contribution will be treated as a qualified rollover contribution and the modified AGI limits that generally apply to Roth IRA rollovers do not apply to airline payments. The rollover contribution is included in income to the extent it would be included in income if it were not part of the rollover contribution. Also, any reduction in the airline payment amount on account of employment taxes shall be disregarded when figuring the amount you can contribute to your Roth IRA.

Airline payment.   An airline payment is any payment of money or other property that is paid to a qualified airline employee from a commercial airline carrier. The payment also must be made both:
  • Under the approval of an order of federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007, and

  • In respect of the qualified airline employee's interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump sum amount.

An airline payment amount shall not include any amount payable on the basis of the carrier's future earnings or profits.

Qualified airline employee.   A qualified airline employee is an employee or former employee of a commercial airline carrier who was a participant in a qualified defined benefit plan maintained by the carrier which was terminated or became subject to restrictions under Section 402(b) of the Pension Protection Act of 2006.

  For more information, see Form 8935, Airline Payment Report. This form will be sent to you within 90 days following an airline payment, or by March 23, 2009, whichever is later. The form will indicate the amount of the airline payment that is eligible to be rolled over to a Roth IRA.

Are Distributions Taxable?

You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions , later.

Basis of distributed property.   The basis of property distributed from a Roth IRA is its fair market value (FMV) on the date of distribution, whether or not the distribution is a qualified distribution.

Withdrawals of contributions by due date.   If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

  1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

  2. The payment or distribution is:

    1. Made on or after the date you reach age 59½,

    2. Made because you are disabled,

    3. Made to a beneficiary or to your estate after your death, or

    4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

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Is Roth Distributions a Qualified Distribution?

Additional Tax on Early Distributions

If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.

Distributions of conversion and certain rollover contributions within 5-year period.   If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income. A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions , later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion or rollover contribution that you had to include in income.

  The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions , earlier.

  For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2008, and makes a regular contribution for 2007 on the same date, the 5-year period for the conversion begins January 1, 2008, while the 5-year period for the regular contribution begins on January 1, 2007.

  Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover.

  You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.

Other early distributions.   Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Exceptions.   You may not have to pay the 10% additional tax in the following situations.
  • You have reached age 59½.

  • You are disabled.

  • You are the beneficiary of a deceased IRA owner.

  • You use the distribution to pay certain qualified first-time homebuyer amounts.

  • The distributions are part of a series of substantially equal payments.

  • You have significant unreimbursed medical expenses.

  • You are paying medical insurance premiums after losing your job.

  • The distributions are not more than your qualified higher education expenses.

  • The distribution is due to an IRS levy of the qualified plan.

  • The distribution is a qualified reservist distribution.

  • The distribution is a qualified disaster recovery assistance distribution.

  • The distribution is a qualified recovery assistance distribution.

Most of these exceptions are discussed earlier in chapter 1 under Early Distributions .

Tax-free withdrawal of economic stimulus payments.    You may choose to withdraw an economic stimulus payment that was directly deposited to your Roth IRA in 2008. If you choose to withdraw any or all of the payment, that portion of the payment is treated as neither contributed nor distributed from your IRA. The amount withdrawn is not included in your income and is not subject to additional tax or penalty. The withdrawal must be made by the due date for filing your 2008 tax return, including extensions. For most people that would be April 15, 2009.

  If you do withdraw all or part of the payment from your IRA, you will receive a Form 1099-R showing the amount of the distribution. Include the distribution on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. Do not make an entry on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b, but enter “ESP” in the space next to the line. For more information see the instructions for your tax return.

Ordering Rules for Distributions

If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed earlier under What if You Contribute Too Much . Order the distributions as follows.

  1. Regular contributions.

  2. Conversion and rollover contributions, on a first-in-first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules , later. Take these conversion and rollover contributions into account as follows:

    1. Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the

    2. Nontaxable portion.

  3. Earnings on contributions.

Disregard rollover contributions from other Roth IRAs for this purpose.

Aggregation (grouping and adding) rules.   Determine the taxable amounts distributed (withdrawn), distributions, and contributions by grouping and adding them together as follows.
  • Add all distributions from all your Roth IRAs during the year together.

  • Add all regular contributions made for the year (including contributions made after the close of the year, but before the due date of your return) together. Add this total to the total undistributed regular contributions made in prior years.

  • Add all conversion and rollover contributions made during the year together. For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2008 and the conversion or rollover contribution is made in 2009, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2009.

Add any recharacterized contributions that end up in a Roth IRA to the appropriate contribution group for the year that the original contribution would have been taken into account if it had been made directly to the Roth IRA.

  Disregard any recharacterized contribution that ends up in an IRA other than a Roth IRA for the purpose of grouping (aggregating) both contributions and distributions. Also disregard any amount withdrawn to correct an excess contribution (including the earnings withdrawn) for this purpose.

Example.

On October 15, 2003, Justin converted all $80,000 in his traditional IRA to his Roth IRA. His Forms 8606 from prior years show that $20,000 of the amount converted is his basis.

Justin included $60,000 ($80,000 − $20,000) in his gross income.

On February 23, 2008, Justin made a regular contribution of $5,000 to a Roth IRA. On November 7, 2008, at age 60, Justin took a $7,000 distribution from his Roth IRA.

The first $5,000 of the distribution is a return of Justin's regular contribution and is not includible in his income.

The next $2,000 of the distribution is not includible in income because it was included previously.

How Do You Figure the Taxable Part?

To figure the taxable part of a distribution that is not a qualified distribution, complete Worksheet 2-3.

Worksheet 2-3. Figuring the Taxable Part of a Distribution (Other Than a Qualified Distribution) From a Roth IRA

1. Enter the total of all distributions made from your Roth IRA(s) (other than qualified charitable distributions or a one-time distribution to fund an HSA) during the year 1.  
2. Enter the amount of qualified distributions made during the year 2.  
3. Subtract line 2 from line 1 3.  
4. Enter the amount of distributions made during the year to correct excess contributions made during the year. (Do not include earnings.) 4.  
5. Subtract line 4 from line 3 5.  
6. Enter the amount of distributions made during the year that were contributed to another Roth IRA in a qualified rollover contribution (other than a repayment of a qualified disaster recovery assistance or recovery assistance distribution) 6.  
7. Subtract line 6 from line 5 7.  
8. Enter the amount of all prior distributions from your Roth IRA(s) (other than qualified charitable distributions or a one-time distribution to fund an HSA) whether or not they were qualified distributions 8.  
9. Add lines 3 and 8 9.  
10. Enter the amount of the distributions included on line 8 that were previously includible in your income 10.  
11. Subtract line 10 from line 9 11.  
12. Enter the total of all your contributions to all of your Roth IRAs 12.  
13. Enter the total of all distributions made (this year and in prior years) to correct excess contributions. (Include earnings.) 13.  
14. Subtract line 13 from line 12. (If the result is less than 0, enter 0.) 14.  
15. Subtract line 14 from line 11. (If the result is less than 0, enter 0.) 15.  
16. Enter the smaller of the amount on line 7 or the amount on line 15. This is the taxable part of your distribution 16.  

Must You Withdraw or Use Assets?

You are not required to take distributions from your Roth IRA at any age. The minimum distribution rules that apply to traditional IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, certain of the minimum distribution rules that apply to traditional IRAs also apply to Roth IRAs as explained later under Distributions After Owner's Death .

Minimum distributions.   You cannot use your Roth IRA to satisfy minimum distribution requirements for your traditional IRA. Nor can you use distributions from traditional IRAs for required distributions from Roth IRAs. See Distributions to beneficiaries , later.

Recognizing Losses on Investments

If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis.

Your basis is the total amount of contributions in your Roth IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Distributions After Owner's Death

If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. See When Can You Withdraw or Use Assets? in chapter 1.

Distributions to beneficiaries.   Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary. (See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1.) If you are a beneficiary receiving distributions over a 5-year period, you can waive the distribution for 2009, effectively taking distributions over a 6-year rather than a 5-year period.

  If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent.

  If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70½ or treat the Roth IRA as his or her own.

Temporary waiver of required minimum distribution rules for 2009.    No minimum distributions are required for 2009. The waiver applies to post-death minimum distributions required for Roth IRA beneficiaries in the same way it applies to traditional IRA beneficiaries. See Temporary waiver of required minimum distribution rules for 2009 in chapter 1.

Combining with other Roth IRAs.   A beneficiary can combine an inherited Roth IRA with another Roth IRA maintained by the beneficiary only if the beneficiary either:
  • Inherited the other Roth IRA from the same decedent, or

  • Was the spouse of the decedent and the sole beneficiary of the Roth IRA and elects to treat it as his or her own IRA.

Distributions that are not qualified distributions.   If a distribution to a beneficiary is not a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive.

  If the owner of a Roth IRA dies before the end of:
  • The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or

  • The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA,

each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable.

Example.

When Ms. Hibbard died in 2008, her Roth IRA contained regular contributions of $4,000, a conversion contribution of $10,000 that was made in 2004, and earnings of $2,000. No distributions had been made from her IRA. She had no basis in the conversion contribution in 2004.

When she established her Roth IRA, she named each of her 4 children as equal beneficiaries. Each child will receive one-fourth of each type of contribution and one-fourth of the earnings. An immediate distribution of $4,000 to each child will be treated as $1,000 from regular contributions, $2,500 from conversion contributions, and $500 from earnings.

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The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization. For the 2014 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims. Some IRS Assistance and Taxpayer Services Shift to Automated Resources New Services Available for Taxpayers in 2014 IRS Warns of Pervasive Telephone Scam IR-2013-84, Oct. 31, 2013 — The IRS warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants. IRS Opens Online FATCA Registration System IR-2013-69, Aug. 19, 2013 — The IRS announced the opening of a new online registration system for financial institutions that need to register with the IRS under the Foreign Account Tax Compliance Act (FATCA). Report Outlines Changes for IRS To Ensure Accountability, Chart a Path Forward; Immediate Actions, Next Steps Outlined IR-2013-62, June 24, 2013 ― IRS Principal Deputy Commissioner Werfel issued a report outlining new actions and next steps to fix problems uncovered with the IRS’ review of tax-exempt applications and improve the wider processes and operations in place at the IRS. IRS Charts a Path Forward with Immediate Actions The IRS is outlining new actions and next steps to fix problems uncovered with the IRS’ review of tax-exempt applications and improve the wider processes and operations in place at the IRS. Questions and Answers on 501(c) Organizations May 15, 2013 — The IRS has received a variety of questions related to the exempt organization issues recently raised. The Q&As answer some basics on the issue. FAQs on New Payment Card Reporting Requirements The IRS is providing special transitional relief to banks and other payment settlement entities required to begin reporting payment card and third-party network transactions on new Form 1099-K. The American Recovery and Reinvestment Act of 2009: Information Center Update on the new economic stimulus legislation. Compliance & Enforcement News A collection of recent news releases, statements and other items related to IRS compliance and enforcement efforts. Treasury, IRS Will Issue Proposed Guidance for Tax-Exempt Social Welfare Organizations IR-2013-92, Nov. 26, 2013 — The Treasury Department and the IRS will issue initial guidance regarding qualification requirements for tax-exemption as a social welfare organization under section 501(c)(4) of the Internal Revenue Code. Treasury and IRS Announce That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes; Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married Couples IR-2013-72, Aug. 29, 2013 — Treasury and the IRS today ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. Fiscal Year 2013 Enforcement and Service Results The Fiscal Year 2013 Enforcement and Service Results provide the dollars collected from the examination (audit) and collection functions of the IRS. The results also tally various taxpayer assistance program results.

Tax on excess accumulations (insufficient distributions).   If distributions from an inherited Roth IRA are less than the required minimum distribution for the year, discussed in chapter 1 under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. For the tax on excess accumulations (insufficient distributions), see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes? in chapter 1. If this applies to you, substitute “Roth IRA” for “traditional IRA” in that discussion.News Releases for Current Month IRS Accepting Applications for Low Income Taxpayer Clinic Grants IR-2014-63, May 15, 2014 — The IRS announced the opening of the 2015 Low Income Taxpayer Clinic grant application process. For Small Business Week, IRS Spotlights Two Webinars, Health Care Tax Benefits, Simplified Home Office Deduction, Relief for Reclassifying Workers IR-2014-62, May 8, 2014 — The IRS marks Small Business Week by holding two free webinars for small businesses and encouraging them to check out several key tax benefits and a special relief program for employers who reclassify their workers as employees. Low Income Taxpayer Clinic Grant Recipients Announced IR-2014-61, May 5, 2014 — The IRS awarded nearly $10 million in matching grants to Low Income Taxpayer Clinics for the 2014 grant year. IRS Seeks Applicants for Volunteer Tax Assistance Program Grants IR-2014-60, May 5, 2014 — Applications for the Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) grant programs will be accepted through June 2. IRS Seeks Applications for the Internal Revenue Service Advisory Council IR-2014-59, May 1, 2014 — The IRS announced it is accepting applications for the Internal Revenue Service Advisory Council through June 13, 2014. Former Lawyer/CPA Disbarred from Practice before the IRS for Filing False Powers of Attorney IR-2014-58, May 1, 2014 – The Internal Revenue Service announced its Office of Professional Responsibility obtained the disbarment of Charles M. Edgar, which revokes his authority to practice before the IRS. News Release and Fact Sheet Archive News releases and fact sheets from November 2002 forward and an archive of news releases and fact sheets in PDF format back to 1997. Form 1099-K ( Payment Card and Third Party Network Transactions 2013 02/26/2014 Form 11-C Occupational Tax and Registration Return for Wagering 1213 11/15/2013 Form 23 Application for Enrollment to Practice Before the Internal Revenue Service 0413 05/09/2013 Form 23-EP Application for Enrollment to Practice Before the Internal Revenue Service as an Enrolled Retirement Plan Agent (ERPA) 0413 05/09/2013 Form 56 Notice Concerning Fiduciary Relationship 1211 07/17/2012 Inst 56 Instructions for Form 56, Notice Concerning Fiduciary Relationship 1211 07/17/2012 Form 56-F Notice Concerning Fiduciary Relationship of Financial Institution 1209 07/17/2012 Form 211 Application for Reward for Original Information 0314 04/02/2014 Form 211-A State or Local Law Enforcement 0389 07/17/2012 Form 433-A Collection Information Statement for Wage Earners and Self-Employed Individuals 1212 03/29/2013 Form 433-A (OIC) Collection Information Statement for Wage Earners and Self-Employed Individuals 0114 12/31/2013 Form 433-A (SP) Informacion de Cobro Para los Asalariados y los Individuos Autonomos 0313 04/23/2013 Form 433-B Collection Information Statement for Businesses 1212 12/05/2012 Form 433-B (OIC) Collection Information Statement for Businesses 0114 12/31/2013 Form 433-B (SP) Informacion de Cobro Para los Negocios 0513 05/10/2013 Form 433-D Installment Agreement 1113 01/08/2014 Form 433-D (SP) Installment Agreement (Spanish version) 1113 01/08/2014 Form 433-F Collection Information Statement 0113 04/18/2013 Form 433-F (SP) Collection Information Statement (Spanish version) 0313 12/13/2013 Form 637 Application for Registration (For Certain Excise Tax Activities) 1213 12/16/2013 Form 656-B Offer in Compromise Booklet 0114 12/31/2013 Form 656-L Offer in Compromise (Doubt as to Liability) 0212 07/17/2012 Form 656-PPV Offer in Compromise - Periodic Payment Voucher 0309 07/17/2012 Form 673 Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911 1207 07/17/2012 Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return 0813 10/29/2013 Inst 706 Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return 0813 11/19/2013 Form 706-A United States Additional Estate Tax Return 0913 09/20/2013 Inst 706-A Instructions for Form 706-A, United States Additional Estate Tax Return 0913 09/24/2013 Form 706-CE Certification of Payment of Foreign Death Tax 1013 11/13/2013 Form 706-D United States Additional Estate Tax Return Under Code Section 2057 1208 07/17/2012 Inst 706-D Instructions for Form 706-D, United States Additional Estate Tax Return Under Code Section 2057 1208 07/17/2012 Form 706-GS(D) Generation-Skipping Transfer Tax Return for Distributions 0813 10/11/2013 Inst 706-GS(D) Instructions for Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions 0813 10/17/2013 Form 706-GS(D-1) Notification of Distribution From a Generation-Skipping Trust 1008 07/17/2012 Inst 706-GS(D-1) Instructions for Form 706-GS(D-1), Notification of Distribution From a Generation-Skipping Trust 1113 10/17/2013 Form 706-GS(T) Generation Skipping Transfer Tax Return for Terminations 1113 10/11/2013 Inst 706-GS(T) Instructions for Form 706-GS(T), Generation-Skipping Transfer Tax Return For Terminations 1113 10/29/2013 Form 706-NA United States Estate (and Generation-Skipping Transfer) Tax Return 0813 08/23/2013 Inst 706-NA Instructions for Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return (Estate of nonresident not a citizen of the U.S.) 0813 02/19/2014 Form 706-QDT U.S. Estate Tax Return for Qualified Domestic Trusts 0813 08/19/2013 Inst 706-QDT Instructions for Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts 0813 08/30/2013 Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return 2013 11/25/2013 Inst 709 Instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return 2013 01/18/2014 Form 712 Life Insurance Statement 0406 07/17/2012 Form 720 Quarterly Federal Excise Tax Return 0114 01/31/2014 Inst 720 Instructions for Form 720, Quarterly Federal Excise Tax Return 0114 02/10/2014 Form 720-CS Carrier Summary Report 0910 07/17/2012 Inst 720-CS Instructions for Form 720-CS, Carrier Summary Report 0910 07/17/2012 Form 720-TO Terminal Operator Report 0910 07/17/2012 Inst 720-TO Instructions for Form 720-TO, Terminal Operator Report 0910 07/17/2012 Form 720-X Amended Quarterly Federal Excise Tax Return 0313 04/03/2013 Form 730 Monthly Tax Return for Wagers 1213 10/16/2013 Form 843 Claim for Refund and Request for Abatement 0811 10/01/2013 Inst 843 Instructions for Form 843, Claim for Refund and Request for Abatement 1213 01/06/2014 Form 851 Affiliations Schedule 1210 07/17/2012 Form 886-H-AOC Supporting Documents to Prove American Opportunity Credit 0709 07/17/2012 Form 886-H-FTHBC First-Time Homebuyer Credit Supporting Documents 0909 07/17/2012 Form 907 Agreement to Extend the Time to Bring Suit 0101 07/17/2012 Form 911 Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) 0511 12/13/2012 Form 921 Consent to Extend the Time to Assess Income Tax 0701 07/17/2012 Form 921-A Consent Fixing Period of Limitation on Assessment of Income and Profits Tax 0101 07/17/2012 Form 921-I Consent Fixing Period of Limitation on Assessment of Income and Profits Tax 1012 05/16/2014 Form 921-P Consent Fixing Period of Limitation on Assessment of Income and Profits Tax 1001 07/17/2012 Form 926 Return by a U.S. Transferor of Property to a Foreign Corporation 1213 10/30/2013 Inst 926 Instructions for Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation 1213 11/05/2013 Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return 2013 01/24/2014 Inst 940 Instructions for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return 2013 11/20/2013 Form 940 (PR) Planilla Para La Declaracion Federal Anual Del Patrono de la Contribcion Federal Para El Desempleo (FUTA) 2013 12/20/2013 Inst 940 (PR) Instrucciones para el Formulario 940-PR, Planilla para la Declaracion Federal Anual del Patrono de la Contribucion Federal para el Desempleo (FUTA) 2013 12/18/2013 Form 940 (PR) (Schedule A) Multi-State Employer and Credit Reduction Information (Puerto Rican Version) 2013 12/13/2013 Form 940 (Schedule A) Multi-State Employer and Credit Reduction Information 2013 11/20/2013 Form 940 (Schedule R) Allocation Schedule for Aggregate Form 940 Filers 1212 11/23/2012 Form 940-B Request for Verification of Credit Information Shown on Form 940 0510 07/17/2012 Form 941 Employer's Quarterly Federal Tax Return 0114 01/31/2014 Inst 941 Instructions for Form 941, Employer's Quarterly Federal Tax Return 0114 01/31/2014 Form 941 (PR) Planilla para la Declaracion Federal TRIMESTRAL del Patrono 0114 03/19/2014 Inst 941 (PR) Instrucciones para el Formulario 941-PR, Planilla para la Declaracion Federal TRIMESTRAL del Patrono 0114 03/25/2014 Form 941 (PR) (Schedule B) Registro de la Obligacion Contributiva para los Depositantes de Itinerario Bisemanal 0114 02/03/2014 Inst 941 (PR) (Schedule B) Instrucciones para el Anexo B (Forma 941-PR), Registro de la Obligacion Contributiva para los Depositantes de Itinerario Bisemanal 0114 02/07/2014 Form 941 (Schedule B) Report of Tax Liability for Semiweekly Schedule Depositors 0114 01/30/2014 Inst 941 (Schedule B) Instructions for Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors 0114 01/30/2014 Form 941 (Schedule D) Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations 0611 07/17/2012 Inst 941 (Schedule D) Instructions for Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations 0611 07/17/2012 Form 941 (Schedule R) Allocation Schedule for Aggregate Form 941 Filers 0114 01/30/2014 Form 941-SS Employer's Quarterly Federal Tax Return - American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands 0114 01/31/2014 Inst 941-SS Instructions for Form 941-SS, Employer's Quarterly Federal Tax Return - American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands 0114 01/31/2014 Form 941-X Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund 0414 04/16/2014 Inst 941-X Instructions for Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund 0414 04/16/2014 Form 941-X (PR) Adjusted Employer?s Quarterly Federal Tax Return or Claim for Refund (Puerto Rico Version) 0414 05/09/2014 Inst 941-X (PR) Instructions for Form 941-X (PR), Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund (Puerto Rico Version) 0413 04/19/2013 Form 943 Employer's Annual Federal Tax Return for Agricultural Employees 2013 12/06/2013 Inst 943 Instructions for Form 943, Employer's Annual Federal Tax Return for Agricultural Employees 2013 12/06/2013 Form 943 (PR) Planilla para la Declaracion Anual de la Contribucion Federal del Patrono de Empleados Agricolas 2013 12/17/2013 Inst 943 (PR) Instrucciones para el Formulario 943-PR, Planilla para la Declaracion Anual de la Contribucion Federal del Patrono de Empleados Agricolas 2013 01/09/2014 Form 943-A Agricultural Employer's Record of Federal Tax Liability 1213 12/06/2013 Form 943-A (PR) Registro De La Obligation Contributiva Federal del Patrono Agr?cola 1213 12/19/2013 Form 943-X Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund 0214 02/27/2014 Inst 943-X Instructions for Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund 0214 02/27/2014 Form 943-X (PR) Adjuste a la Declaraci?n Federal ANUAL del Patrono de Empleados Agr?colas o Reclamaci?n de Reembolso 0514 05/16/2014 Inst 943-X (PR) Instructions for Form 943-X (PR), Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund 0514 05/16/2014 Form 944 Employer's Annual Federal Tax Return 2013 12/18/2013 Inst 944 Instructions for Form 944, Employer's Annual Federal Tax Return 2013 12/18/2013 Form 944 (PR) Planilla para la Declaracion Federal ANUAL del Patrono 2011 07/17/2012 Inst 944 (PR) Instrucciones para el Formulario 944-PR, Planilla para la Declaracion Federal ANUAL del Patrono 2011 07/17/2012 Form 944 (SP) Declaracion Federal ANUAL de Impuestos del Patrono o Empleador 2013 12/30/2013 Inst 944 (SP) Instrucciones para el Formulario 944(SP), Declaracion Federal ANUAL de Impuestos del Patrono o Empleador 2013 01/30/2014 Form 944-SS Employer's Annual Federal Tax Return - American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands 2011 07/17/2012 Inst 944-SS Instructions for Form 944-SS, Employer's Annual Federal Tax Return - American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands 2011 07/17/2012 Form 944-X Adjusted Employer's Annual Federal Tax Return or Claim for Refund 0214 02/27/2014 Inst 944-X Instructions for Form 944-X, Adjusted Employer's Annual Federal Tax Return or Claim for Refund 0214 02/27/2014 Form 944-X (PR) Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Puerto Rican Version) 0212 07/17/2012 Inst 944-X (PR) Instructions for Form 944-X (PR), Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Puerto Rican Version) 0212 08/23/2012 Form 944-X (SP) Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Spanish Version) 0514 05/06/2014 Inst 944-X (SP) Instructions for Form 944-X (SP), Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Spanish Version) 0514 05/08/2014 Form 945 Annual Return of Withheld Federal Income Tax 2013 10/09/2013 Inst 945 Instructions for Form 945, Annual Return of Withheld Federal Income Tax 2013 10/09/2013 Form 945-A Annual Record of Federal Tax Liability 0214 02/04/2014 Form 945-X Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund 0214 02/27/2014 Inst 945-X Instructions for Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund 0214 02/27/2014 Form 952 Consent to Extend Period of Limitation on Assessment of Income Taxes 1206 07/17/2012 Form 966 Corporate Dissolution or Liquidation 1210 07/17/2012 Form 970 Application to Use Lifo Inventory Method 1112 11/29/2012 Form 972 Consent of Shareholder to Include Specific Amount in Gross Income 1211 07/17/2012 Form 973 Corporation Claim for Deduction for Consent Dividends 1203 07/17/2012 Form 976 Claim for Deficiency Dividends Deductions by a Personal Holding Company, Regulated Investment Company, or Real Estate Investment Trust 1212 10/24/2012 Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) 0713 07/17/2013 Form 990 Return of Organization Exempt from Income Tax 2013 10/28/2013 Inst 990 Instructions for Form 990, Return of Organization Exempt From Income Tax 2013 12/04/2013 Form 990 (Schedule D) Supplemental Financial Statements 2013 09/24/2013 Inst 990 (Schedule D) Instructions for Schedule D (Form 990), Supplemental Financial Statements 2013 11/19/2013 Form 990 (Schedule F) Statement of Activities Outside the United States 2013 10/02/2013 Inst 990 (Schedule F) Instructions for Schedule F (Form 990), Statement of Activities Outside the U.S. 2013 10/29/2013 Form 990 (Schedule H) Hospitals 2013 10/02/2013 Inst 990 (Schedule H) Instructions for Schedule H (Form 990), Hospitals 2013 01/16/2014 Form 990 (Schedule I) Grants and Other Assistance to Organizations, Governments and Individuals in the U.S. 2013 10/28/2013 Form 990 (Schedule I-1) Continuation Sheet for Schedule I (Form 990) 2009 07/17/2012 Form 990 (Schedule J) Compensation Information 2013 09/12/2013 Inst 990 (Schedule J) Instructions for Schedule J (Form 990), Compensation Information 2013 12/02/2013 Form 990 (Schedule J-1) Continuation Sheet for Schedule J (Form 990) 2009 07/17/2012 Form 990 (Schedule J-2) Continuation Sheet for Form 990 2009 07/17/2012 Form 990 (Schedule K) Supplemental Information on Tax-Exempt Bonds 2013 10/07/2013 Inst 990 (Schedule K) Instructions for Schedule K (Form 990), Supplemental Information on Tax-Exempt Bonds 2013 12/03/2013 Form 990 (Schedule M) Noncash Contributions 2013 08/30/2013 Form 990 (Schedule O) Supplemental Information to Form 990 2013 09/03/2013 Form 990 (Schedule R) Related Organizations and Unrelated Partnerships 2013 01/08/2014 Inst 990 (Schedule R) Instructions for Schedule R (Form 990), Related Organizations and Unrelated Partnerships 2013 11/01/2013 Form 990 (Schedule R-1) Continuation Sheet for Schedule R (Form 990) 2009 07/17/2012 Form 990 or 990-EZ (Sch A) Public Charity Status and Public Support 2013 09/24/2013 Inst 990 or 990-EZ (Sch A) Instructions for Schedule A (Form 990 or Form 990-EZ), Public Charity Status and Public Support 2013 11/26/2013 Form 990 or 990-EZ (Sch C) Political Campaign and Lobbying Activities 2013 11/07/2013 Inst 990 or 990-EZ (Sch C) Instructions for Schedule C (Form 990 or 990-EZ), Political Campaign and Lobbying Activities 2013 10/15/2013 Form 990 or 990-EZ (Sch E) Schools 2013 10/02/2013 Form 990 or 990-EZ (Sch G) Supplemental Information Regarding Fundraising or Gaming Activities 2013 09/11/2013 Inst 990 or 990-EZ (Sch G) Instructions for Schedule G (Form 990 or 990-EZ), Supplemental Information Regarding Fundraising or Gaming Activities 2013 10/03/2013 Form 990 or 990-EZ (Sch L) Transactions with Interested Persons 2013 09/24/2013 Inst 990 or 990-EZ (Sch L) Instructions for Schedule L (Form 990 or 990-EZ), Transactions with Interested Persons 2013 10/29/2013 Form 990 or 990-EZ (Sch N) Liquidation, Termination, Dissolution, or Significant Disposition of Assets 2013 09/11/2013 Form 990 or 990-EZ (Sch N-1) Continuation Sheet for Schedule N (Form 990 or 990-EZ) 2009 07/17/2012 Form 990, 990-EZ, 990PF (Sch B) Schedule of Contributors 2013 10/23/2013 Form 990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons 1213 08/29/2013 Inst 990-BL Instructions for Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons 1213 08/30/2013 Form 990-EZ Short Form Return of Organization Exempt from Income Tax 2013 11/22/2013 Inst 990-EZ Instructions for Form 990-EZ, Short Form Return of Organization Exempt From Income Tax Under Section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code 2013 12/24/2013 Form 990-PF Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation 2013 10/09/2013 Inst 990-PF Instructions for Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation 2013 11/22/2013 Form 990-T Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)) 2013 12/11/2013 Inst 990-T Instructions for Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)) 2013 01/04/2014 Form 990-W Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations 2014 01/02/2014 Form 1000 Ownership Certificate 1205 08/23/2012 Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code 1213 12/05/2013 Inst 1023 Instructions for Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code 0606 07/17/2012 Form 1023-I Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (Interactive) 0606 09/29/2013 Form 1024 Application for Recognition of Exemption Under Section 501(a) 0998 07/17/2012 Inst 1024 Instructions for Form 1024, Application for Recognition of Exemption Under Section 501(a) 0998 07/17/2012 Form 1028 Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code 0906 08/21/2012 Inst 1028 Instructions for Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code 0906 07/17/2012 Form 1040 U.S. Individual Income Tax Return 2013 04/02/2014 Inst 1040 Instructions for Form 1040, U.S. Individual Income Tax Return, Form 8949, and Schedules 8812, A, C, D, E, F, R, and SE 2013 04/04/2014 Inst 1040 (General Inst.) Instructions for Form 1040, U.S. Individual Income Tax Return 2013 04/02/2014 Form 1040 (PR) Planilla para la Declaraci?n de la Contribuci?n Federal sobre el Trabajo por Cuenta Propia (Incluyendo el Cr?dito Tributario Adicional por Hijos para Residentes Bona Fide de Puerto Rico) 2013 01/22/2014 Inst 1040 (PR) Instrucciones para el Formulario 1040-PR, Planilla Para La Declaracion De La Contribucion Federal Sobre El Trabajo Por Cuenta Propia - Puerto Rico 2013 01/29/2014 Form 1040 (PR) (Anexo H-PR) Contribuciones Sobre El Empleo De Empleados Domesticos 2013 01/22/2014 Inst 1040 (PR) (Anexo H-PR) Instrucciones para el Anexo H-PR (Formulario 1040-PR), Contribuciones sobre el Empleo de Empleados Domesticos 2013 01/22/2014 Form 1040 (Schedule 8812) Child Tax Credit 2013 12/26/2013 Inst 1040 (Schedule 8812) Instructions for Child Tax Credit 2013 12/26/2013 Form 1040 (Schedule A) Itemized Deductions 2013 04/02/2014 Inst 1040 (Schedule A) Instructions for Schedule A (Form 1040), Itemized Deductions 2013 04/02/2014 Form 1040 (Schedule B) Interest and Ordinary Dividends 2013 09/27/2013 Form 1040 (Schedule C) Profit or Loss from Business (Sole Proprietorship) 2013 10/25/2013 Inst 1040 (Schedule C) Instructions for Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) 2013 12/17/2013 Form 1040 (Schedule C-EZ) Net Profit from Business (Sole Proprietorship) 2013 10/22/2013 Form 1040 (Schedule D) Capital Gains and Losses 2013 11/12/2013 Inst 1040 (Schedule D) Instructions for Schedule D (Form 1040), Capital Gains and Losses 2013 12/30/2013 Form 1040 (Schedule E) Supplemental Income and Loss 2013 10/28/2013 Inst 1040 (Schedule E) Instructions for Schedule E (Form 1040), Supplemental Income and Loss 2013 12/04/2013 Form 1040 (Schedule EIC) Earned Income Credit 2013 11/08/2013 Form 1040 (Schedule F) Profit or Loss From Farming 2013 10/28/2013 Inst 1040 (Schedule F) Instructions for Schedule F (Form 1040), Profit or Loss From Farming 2013 11/13/2013 Form 1040 (Schedule H) Household Employment Taxes 2013 12/26/2013 Inst 1040 (Schedule H) Instructions for Schedule H (Form 1040), Household Employment Taxes 2013 12/31/2013

Below are references to articles and information that is referenced to from the website. Also to be found is the required IRS Circular 230 disclosure.

 

Estimated Taxes

In our last month’s Strategies we discussed “who must pay estimated tax and the related planning tools”. We take up from there to discuss the ways to assess estimated tax, ways of making payment and penalty for underpayment.

 

Estimating Your Tax

 

Form 1040-ES, used to pay estimated tax, comes with a worksheet one can use to estimate how much tax one will owe for the current year. Most people don't prefer to use it as it takes them through more detail than may be necessary and is still unable to eliminate uncertainty about the tax liability. The usual way to estimate taxes is comparatively simple:

 

●   We look at each number on the prior year's tax return and ask whether this year's number is likely to be significantly different and disregard differences in wages because there will be a corresponding difference in withholding.

●    Now we add up all the differences to see how much more or less our taxable income will be for the current year.

●    And then apply the tax rates to see how much difference this will make in our income tax. (If the difference results from a capital gain, we apply the capital gain tax rates.) We can round the number up or tack on an added amount to increase our comfort level about avoiding a penalty.

 

Many people using this method don't consider changes in tax rates, standard deduction and personal exemptions that result from inflation adjustments. These changes will decrease your tax slightly, so that's one way of providing a cushion of extra payments. Example: Suppose you estimated your 2006 taxable income exactly right, but used the 2005 tax rate schedules to estimate the tax. You would get a refund, because the inflation adjustments for 2006 will result in a lower tax.

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Making the Payment

 

After determining how much you need to pay, you should consider whether to use estimated tax payments or an increase in withholding to pay this amount.

 

1) Estimated Tax Payments

 

There are two ways to figure each payment.

a) Regular Installment Method

 

One of the easiest ways to make quarterly payments is to estimate your total tax liability for the year and divide by four. For nearly all taxpayers, the due date for the first estimated tax payment of each year is April 15 — the same day the return is due for the previous year. Subsequent payments are due June 15, September 15, and January 15 of the following year. Although they're considered quarterly payments, they're not all three months apart. Note that if you itemize deductions, it may be to your advantage to make your fourth quarter estimated tax payment in December, not January, so you can deduct it a year earlier.

 

When you make estimated tax payments you need to enclose Form 1040-ES. It asks for your name, address, social security number and the amount you're paying. You don't have to justify your estimated tax payments. All you're saying is "here's a payment on account. Estimated tax payments don’t go to the same address as your return. So, check the instructions for Form 1040-ES for the proper address.

 

b) Annualized Income Installment Method

 

If your year’s income starts off low and ends up high (say because you have huge fourth-quarter capital gains), you should probably use the “annualized method”. This is an exception to the general rule that your four estimated tax payments should be equal. Under the annualized method, estimated payments correspond to your cash flow, so you won’t owe big installments on the earlier due dates before you have the money to pay them. Under this method calculation is very complicated, but it sometimes reduces the penalty by a substantial amount. If you use the annualized income installment method to figure your estimated tax payments, you must file Form 2210. But if you don't want to fill out the form, you don't have to do anything until the IRS does the math and sends you a bill.

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2) Increasing Your Withholding

 

In order to increase the amount of federal income tax withheld from your paycheck, you need to file a new Form W-4 with your employer. This form contains several worksheets, and the instructions tell you to "complete all worksheets that apply." You can fill out the worksheets if you want, but there's no particular need if the only thing you're doing is increasing your withholding to cover tax on investment income.

 

There are two ways to increase your withholding on this form. One is to reduce the number of allowances you claim on the form. This can be a little complicated, because you don't necessarily know how much your withholding will change when you change your allowances. The amount depends on your income level.

 

Another way is to request an "additional amount" to be withheld from your paycheck. This makes it fairly easy to determine the amount of the increase when you file Form W-4. Keep an eye on your paycheck stubs to confirm that the change was properly made and had the effect you anticipated.

 

There’s a special benefit to this approach: extra withholding that comes late in the year is treated the same as if it was spread evenly over the year. You can use this approach to avoid late payment penalties. 

 

Example: Suppose you realize in May that you need to pay $10,000 estimated tax for the year, and you've already blown the first $2,500 payment that was due April 15. You can avoid the penalty altogether by increasing your withholding for the rest of the year by $10,000. This back-loaded withholding can be used retroactively to abate the penalty. This is a real penalty-saving opportunity just for W-2 wage earners.

To go back click here.

Penalty for Underpayment

 

The penalty for underpayment of estimated tax is figured the same as interest. You determine the amount of the underpayment for each period of time and the number of days in that period, and then apply an appropriate interest factor. The interest rate is adjusted from time to time based on market interest rates.

 

Example: Suppose you make estimated tax payments of $5,000 per quarter, thinking that $20,000 would be enough to cover 90% of your tax liability in a year when the prior year safe harbor wasn't available.

 

It turns out that $25,000 was required to cover 90% of your tax liability, so you should have paid an additional $1250 per quarter. The amount of your underpayment is $1250 for the period from April 15 to June 15, $2500 from June 15 to September 15, $3750 until January 15, and $5,000 until April 15, 2007 when you file your return with your payment.

 

Assuming that the recently announced rate for underpayments (third quarter of 2006) is 7%, the underpayment penalty would be roughly $234.

The penalty is not deductible, even if it arises because of investment or business income. If you underpay only a small amount, or you correct the underpayment quickly, the penalty will be small.

 

So you see, even if the estimated–tax rules apply to you, there are easy ways to lessen the pain.

To go back click here.

IRS CIRCULAR 230 DISCLOSURE

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties under the internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax related matters addressed herein.

Important note: Many exceptions, definitions, and special rules in the law have been paraphrased, simplified, and/or omitted. Readers should not take specific action based on this summary without first consulting the statute and regulations or seeking advice from a qualified professional.

 

 

 

What is this Method 10TM

No matter what you think about when it comes to wealth management Method 10 Elements have them covered be it. Here is a list of key elements covered by Method 10 they are; Income Tax Planning, Investment Planning, Retirement Planning, Disability & Income Protection, Asset Protection, Life Insurance, Irrevocable Life Insurance Trust, Variable Life Insurance, Whole Life Insurance, Health Insurance, Disability Insurance, Life Insurance for Estate Planning, Life insurance to pay estate taxes, long term care insurance rider with life insurance, Asset Diversification, Asset Allocation, Stocks and bonds, munis, Estate Planning, Business Planning, Education Planning, Debt management, Special Situations, Cash flow sources and uses, Income tax analysis – savings, tax preparation 1040, 1041, Accredited and Super accredited high net worth investor La Jolla, San Diego, Rancho Santa Fe?, Employee/stock options, Concentrated equity positions, Employer stock inside an employer qualified plan, Charitable giving, Sale of residence, Roth IRA conversions, Limited Partnership & REITs, Oil and Gas Partnerships, tax minimization strategies, Business valuation, Buy/sell agreements, Key employee death protection, Key employee retention, Retirement plans, Exit strategies, Tax advantaged college funding, Section 529 Plans, Education IRAs, etc., Income tax credits, Hope scholarship, lifetime learning, Charitable Remainder Trusts, living trusts, life insurance trusts, grats, type a trust, type b trust, Financial aid, Divorce, estate attorney referral, Addictions, Child / Eldercare, Occupation / Avocation, Family situations, Expenditures, Cash management problems, Cash flow projections, Budgeting , Goal setting, Implementation, Determination of taxable estate, Traditional and non-traditional plans, Establishing key estate planning documents, Retirement objectives, Available and needed resources, Government plans, Individual plans, IRAs, Roth IRAs, Non-qualified annuities, Employer plans, 401(k), SEPs, Simple IRAs, Profit Sharing, Post retirement asset allocation, Investment goals, Risk tolerance, Suitability, Appropriate recommendations, Asset allocation, Systematic plan and so on and so on, with Method 10 we most probably have you covered.

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IN THE NEWS

 

THE FOLLOWING ARE NEWS ARTICLES WHICH ARE REFERENCED THROUGHOUT THE WEBSITE. YOU WILL

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Taxpayers Have Until April 17 to File and Pay

If the 15th is a weekend the following business day is the deadline.

IR-2007-15, Jan. 24, 2007

WASHINGTON — Taxpayers across the nation will have until Tuesday, April 17, 2007, to file their 2006 returns and pay any taxes due, the Internal Revenue Service announced today.

Taxpayers will have extra time to file and pay because April 15 falls on a Sunday in 2007, and the following day, Monday, April 16, is Emancipation Day, a legal holiday in the District of Columbia.

“This year, taxpayers have additional time to file and pay beyond the traditional April 15 deadline,” said IRS Commissioner Mark W. Everson. “As we always do, we encourage taxpayers to get an early start on their taxes to make sure they have plenty of time to accurately prepare their return.”

This means the entire country has an April 17 deadline. Previously, the April 17 deadline applied just to individuals in the District of Columbia and six eastern states who are served by an IRS processing facility in Massachusetts, where Patriots Day will be observed on April 16.

The April 17, 2007 deadline will apply to any of the following:

2006 federal individual income tax returns, whether filed electronically or on paper.   Requests for an automatic six-month tax-filing extension, whether submitted electronically or on Form 4868.   Tax year 2006 balance due payments, whether made electronically (direct debit or credit card) or by check.   Tax-year 2006 contributions to a Roth or traditional IRA.   Individual estimated tax payments for the first quarter of 2007, whether made electronically or by check.   Individual refund claims for tax year 2003, where the regular three-year statute of limitations is expiring.

Other tax-filing and payment requirements affected by this change are described in IRS Publication 509, Tax Calendars for 2007, available on this Web site.

Most taxpayers will not have to change their plans in response to this announcement. Three out of four individual filers get refunds. Typically, returns claiming refunds are filed early in the tax season.

By law, filing and payment deadlines that fall on a Saturday, Sunday or legal holiday are timely satisfied if met on the next business day. Under a federal statute enacted decades ago, holidays observed in the District of Columbia have impact nationwide on tax issues, not just in D.C. Under recently-enacted city legislation, April 16 is a holiday in the District of Columbia. Officials recently became aware of the intersection of the national filing day and the local observance of the new Emancipation Day holiday after most forms and publications for the current tax filing season went to print.

Even with the extra time, taxpayers can skip the last-minute rush and avoid needless mistakes by filing early, taking advantage of the speed and convenience of electronic filing, choosing direct deposit for any refunds and paying any taxes due by direct debit or credit card. IRS.gov has further details on electronic filing and payment options and links to companies providing these services.

 

Additional Toyota and Lexus Vehicles Certified for the Energy Tax Credit

 

IR-2006-154, Sept. 29, 2006

WASHINGTON — The Internal Revenue Service acknowledged the certification by Toyota Motor Sales U.S.A., Inc., that several of their hybrid Model Year 2007 vehicles qualify for the hybrid tax credit enacted by the Energy Policy Act of 2005.

The certified vehicles are the Toyota Prius, Toyota Highlander Hybrid and the Lexus RX 400h 2WD and 4WD vehicles. The tax credit for hybrid vehicles applies to vehicles purchased on or after January 1, 2006, and may be as much as $3,400 for those who purchase the most fuel-efficient vehicles.

The hybrid vehicle certifications recently acknowledged by the IRS and their full credit amounts are:

2007 Toyota Prius $3,150 2007 Toyota Highlander Hybrid 2WD and 4WD $2,600 2007 Lexus RX 400h 2WD and 4WD $2,200

The full credit amount for these Toyota and Lexus vehicles is available to qualifying purchasers through September 30, 2006.

This tax credit replaced the tax deduction of $2,000, which was previously allowed for taxpayers who purchased a new hybrid vehicle before December 31, 2005, for the clean-burning fuel deduction. Many currently available hybrid vehicles have been certified and qualify for the credit.

The credit for otherwise qualifying vehicles begins to phase out in the second calendar quarter after the quarter in which the manufacturer sells its 60,000th qualifying vehicle. Toyota has reported sales of 88,610 qualifying vehicles (41,779 in the quarter ended March 31, 2006 and 44,831 in the quarter ended June 30, 2006). The phase out period for Toyota vehicles will begin on October 1, 2006.

Therefore the applicable credit amounts during the phase out period for the 2007 model-year vehicles are as follows:

 

Qualifying Vehicle

Purchased by 9/30/06

Purchased from 10/1/06 through 3/31/07

Purchased from 4/1/07 through 9/30/07

Purchased After 10/1/07

Toyota Prius

$3,150

$1,575

$787.50

No Credit

Toyota Highlander 2WD and 4WD

$2,600

$1,300

$650

No Credit

Lexus RX 400h 2WD and 4WD

$2,200

$1,100

$550

No Credit

 

IRS Announces Pension Plan Limitations for 2007

 

IR-2006-162, October 18, 2006

Washington — The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2007.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the Commissioner annually adjust these limits for cost of living increases.

Many of the pension plan limitations will change for 2007.  For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500.  This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Effective January 1, 2007, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $175,000 to $180,000.  For participants who separated from service before January 1, 2007, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2006, by 1.0334.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $44,000 to $45,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  These dollar amounts and the adjusted amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $15,000 to $15,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $220,000 to $225,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $175,000 to $180,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $100,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,000.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $325,000 to $335,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $450 to $500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,000 to $15,500.

The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $85,000 to $90,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $175,000 to $180,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

 

Active-Duty Reservists Get Relief on Retirement Plan Payments: Refunds of 10-Percent Tax Available Back to 2001, New Law Says

 

IR-2006-152, Sept. 28, 2006

WASHINGTON — Military reservists called to active duty can receive payments from their individual retirement accounts, 401(k) plans and 403(b) tax-sheltered annuities, without having to pay the early-distribution tax, according to the Internal Revenue Service.

The newly-enacted Pension Protection Act of 2006 eliminates the 10-percent early-distribution tax that normally applies to most retirement distributions received before age 59½. The new law provides this relief to reservists called to active duty for at least 180 days or for an indefinite period.

Eligible reservists activated after Sept. 11, 2001, and before Dec. 31, 2007, qualify for relief from this tax. This tax is often referred to as the 10-percent early-withdrawal penalty. Regular income taxes continue to apply to these payments in most cases.

Early distributions from both Roth and traditional IRAs received by a reservist while on active duty qualify for this relief. Likewise, a reservist’s elective contributions and earnings distributed to him or her by employer sponsored 401(k) plans and 403(b) tax-sheltered annuities also qualify for this relief.

Because this relief is retroactive, eligible reservists who already paid the 10-percent tax can claim a refund by using Form 1040X to amend their return for the year in which the retirement distribution was received. Eligible reservists should write the words, "active duty reservist," at the top of the form. In Part II Explanation of Changes, the reservist should write the date he or she was called to active duty, the amount of the retirement distribution and the amount of early-distribution tax paid.

Reservists can choose to re-contribute part or all of these distributions to an IRA. Ordinarily, these special contributions must be made within two years after the reservist's active-duty period ends. However, if the reservist's active duty ended before Aug. 17, 2006 (the date the new law was enacted), he or she will have until Aug. 17, 2008, to make these special contributions. No deduction is available for these contributions.

I.R.S. Enlists Outside Help in Collecting Delinquent Taxes

By DAVID CAY JOHNSTON (NYT); National Desk

August 20, 2006, Sunday

If you owe back taxes to the federal government, the next call asking you to pay may come not from an Internal Revenue Service officer, but from a private debt collector.

Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers -- each of whom owes $25,000 or less in back taxes -- to three collection agencies. Larger debtors will continue to be pursued by I.R.S. officers. Back to tax

The move, an initiative of the Bush administration, represents the first step in a broader plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally, they say that Congress has forced their hand by refusing to let them hire more revenue officers, who could pull in a lot of easy-to-collect money.

The private debt collection program is expected to bring in $1.4 billion over 10 years, with the collection agencies keeping about $330 million of that, or 22 to 24 cents on the dollar. Back to tax

By hiring more revenue officers, the I.R.S. could collect more than $9 billion each year and spend only $296 million -- or about three cents on the dollar -- to do so, Charles O. Rossotti, the computer systems entrepreneur who was commissioner from 1997 to 2002, told Congress four years ago.

I.R.S. officials on Friday characterized those figures as correct, but said that the plan Mr. Rossotti had proposed had been forestalled by Congress, which declined to authorize it to hire more revenue officers. Back to tax

Critics of the privatization plan point not only to the higher cost but also to what they say is a greater potential for abuse. With private companies in the mix, they say, debtors could more easily be tricked into paying money to scam artists using spoof Web sites or other schemes, a problem the I.R.S. alerted taxpayers to in April. Brady R. Bennett, collections director for the I.R.S., said that by 2008, about 350,000 past-due tax records will be distributed among about 10 private debt-collection agencies. To guard against fraud, he said, the agencies will contact taxpayers only by telephone or mail -- not the Internet -- and will instruct them to send all payments directly to the United States Treasury, not the private collection agency. Back to tax

One of the three companies selected by the I.R.S. is a law firm in Austin, Tex., where a former partner, Juan Pena, admitted in 2002 that he paid bribes to win a collection contract from the city of San Antonio. He went to jail for the crime.

Last month the same law firm, Linebarger Goggan Blair & Sampson firms, was again in the news. One of its competitors, Municipal Services Bureau, also of Austin, sued Brownsville, Tex., charging that the city improperly gave the Linebarger firm a collections contract that it suggested was influenced by campaign contributions to two city commissioners. Back to tax

Joe Householder, a spokesman for Linebarger firm, which specializes in delinquent tax collections, said it had resolved the issues raised by the Pena case in 2002 and that it believed it had acted properly in Brownsville. The mayor of Brownsville, Eddie Trevino Jr., said that the contract vote had been unanimous and scoffed at the accusations of misconduct.

The two other companies that have won debt collection contracts from the I.R.S. are Pioneer Credit Recovery of Arcade, N.Y., a division of the SLM Corporation, and the CBE Group of Waterloo, Iowa. Back to tax

The main objection so far to the privatization program is that it is more expensive than internal collection. ''I freely admit it,'' Mark W. Everson, the tax commissioner, told a House of Representatives committee in March.

Privatizing government services is often promoted as a way to cut costs. But the government would probably net $1.1 billion from private debt collectors over 10 years, compared with the $87 billion that could be reaped if the agency hired more revenue officers, as Mr. Rossotti had recommended. Back to tax

Taxpayer rights are at risk with privatization, Nina B. Olson, the I.R.S. taxpayer advocate, warned Congress earlier this year. ''Because private collectors will operate under rules of profit maximization rather than the I.R.S.'s customer-service based policy,'' she warned, the private collectors may have less incentive to safeguard taxpayer rights.

Al Cleland, a retired I.R.S. tax collector in Minnesota, predicted that using private collectors would cause some debtors to owe more. Back to tax

''We always told people to get current on their taxes first, so they would not have more penalties added, and then work on paying off their back taxes,'' Mr. Cleland said. ''A private collection agency has no incentive to tell taxpayers that, so people will pay more penalties.''

Mr. Bennett of the I.R.S. said that such advice was correct, but that it applied primarily to small business firm owners, whose cases will not be sent to the private agencies.

Under federal budget rules, money spent to hire tax collectors is treated as a discretionary expense, and Congress is cutting discretionary spending. In business terms, the rules treat the I.R.S. as a cost center, not as the government's profit center. Back to tax

The private debt-collection firms program, however, is outside the budget rules because, except for the start-up costs, the collectors are to be paid from the proceeds.

August 20, 2006, Sunday    New York Times  Late Edition - Final Back to tax

IRS to Cut Audits on Wealthiest July 24, 2006 (United Press International) — The Bush administration plans to cut nearly in half the number of auditors who review tax returns of some of the wealthiest U.S. taxpayers and Firms.

Plans call for eliminating 157 of the Internal Revenue Service's 345 estate tax lawyers, The New York Times reported. The cuts will affect audits of taxpayers who are subject to gift and estate taxes when they transfer assets to their children and others, the newspaper said. Back to tax

IRS Deputy Commissioner Kevin Brown told the Times he ordered the staff cuts because the number of Americans who are subject to the estate tax has fallen under the Bush administration.Back to tax

However, six IRS estate tax lawyers whose jobs are at risk told the newspaper the cuts are part of a behind-the-scenes move at the IRS to shield people with political connections and complex tax-avoidance devices from thorough audits.Back to tax

IRS estate tax lawyer Sharyn Phillips said the cuts were a "back-door way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax."Back to tax

Brown said the savings from estate tax lawyer job cuts would be used to hire agents to audit income tax returns, especially those from people making over $1 million.Back to tax

© Copyright 2006 by United Press International

IRS limits tax break for HRA transfers

Business Insurance via NewsEdge Corporation :

WASHINGTON-Employees with health reimbursement arrangements will lose HRA tax breaks if their employers allow enrollees to transfer unused balances to anyone other than a spouse or dependent, the Internal Revenue Service says. Back to tax

If employers give employees the ability to designate that anyone can receive and use their HRA account balances to pay for medical expenses, the HRA will lose its tax-favored status and all HRA participants will be taxed on funds they receive from the HRA to reimburse them for medical expenses, the IRS said.

``Amounts paid to an employee under a reimbursement plan are not excludable from gross income...if the plan permits amounts to be paid as...medical benefits to a designated beneficiary other than the employee's spouse or dependents of the employee,'' the IRS said in Revenue Ruling 2006-36, which was released last week.

``Because the benefit is provided in connection with the performance of services by the employee, the benefit is considered provided to the employee and must be included in the employee's gross income,'' the ruling states.

Benefit experts aren't surprised at the IRS ruling, noting that it draws upon rules the IRS laid down three years ago, in which the IRS explicitly recognized the legitimacy of HRAs as a health care reimbursement vehicle.Back to tax

``The ruling confirms that the IRS meant what they said in 2002: HRA funds can only flow to employees, spouses and dependents,'' said Andy Anderson, of counsel to the law firm Morgan, Lewis & Bockius L.L.P. in Chicago.

While HRAs haven't received the level of publicity of a somewhat similar arrangement-health savings accounts-they are, in fact, much more common among large employers. For example, among employers with at least 20,000 employees that offered a consumer-driven health care plan in 2005, 89% provided an HRA, while only 11% provided an HSA, according to a survey by Mercer Health & Benefits.Back to tax

Like HSAs, HRAs are linked to high-deductible health insurance plans, with the arrangements used to reimburse enrollees for a portion of uncovered health care expenses, such as those that fall under the deductible.

Also like an HSA, unused HRA balances are automatically rolled over to pay for expenses incurred in succeeding years.

But there are important differences including:

* Employers can require that HRA balances be used only for reimbursement of medical expenses. By contrast, employees can use HSA balances for any reason, though they are taxed on the distribution if used to cover nonhealth care expenses.

* Only employers can fund HRAs. Federal law allows both employers and employees to fund HSAs.Back to tax

* Federal law lays down specific rules on how much money can be contributed each year to employee HSAs, as well as the design of the high-deductible health insurance plans that are linked to HSAs. No such restrictions are imposed on HRAs.

* Unless set up to pay for health care expenses after retirement, employees typically forfeit HRA balances when they terminate employment. By contrast, HSA balances belong to the employee.

In the ruling, the IRS described an arrangement in which the HRA is used to reimburse the medical care expenses of employees and retirees, their spouses and dependents. Additionally, the HRA reimburses the medical care expenses of a surviving spouse and dependents of a deceased employee.Back to tax

Upon the death of the deceased employee's surviving spouse and last dependent, or upon the death of the employee if there is no surviving spouse or dependent, an unused HRA account balance could be used to pay for any medical beneficiary designated by the employee. It's that last feature that causes the arrangement to lose its tax-favored status, according to the IRS ruling.

Benefit experts don't know how widespread such arrangements might be, though typically the IRS issues such rulings when it becomes aware of such a practice and wants to stop it.

``The IRS must have learned of the arrangement and wants to end it before it becomes widespread,'' said Sharon Cohen, an attorney with Watson Wyatt Worldwide in Arlington, Va.

Such arrangements would appeal, for example, to single employees who would want to give account balances to a close relative, such as a nephew or niece that faced significant medical care expenses.Back to tax

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IRS reports audits up 21 percent

Tax agency also cites highest number of audits in 10 years of those making $100,000 or more.

March 17, 2006: 5:52 PM EST Firms

NEW YORK (CNNMoney.com) - Just over 1.2 million individual income tax returns were audited in fiscal year 2005, according to a report released late Friday afternoon by the Internal Revenue Service.

That represents a 21 percent increase from a year earlier. That follows a 19 percent increase in audits in 2004.

The IRS also noted that the number of audits of high-income taxpayers -- defined as those with income of $100,000 or more -- reached 219,208, the highest figure in 10 years.

A table detailing individual return audits showed that the income groups with the highest percentage of audits were taxpayers who reported income under $25,000 and taxpayers who reported income between $100,000 and $200,000. Approximately 1.5 percent of returns reporting income under $25,000 were audited; while 1.41 percent of returns reporting income between $100,000 and $200,000 were audited.

The IRS was not available to comment on the report.

An IRS Audit

This Life Advice® section about An IRS Audit was produced by the MetLife Consumer Education Center with assistance from the Internal Revenue Service.


 

The following is covered below:Back to top

What Is an Audit? Why Me? Which Deductions Are Likely to Be Challenged What Now? Do I Need Professional Help? Can I Appeal the Findings? Audit Advice For More Information.

 

Fear of being audited by the Internal Revenue Service (IRS) can leave even an honest taxpayer unnerved. It's important to be truthful when filing your taxes, of course, but it's even more critical to be prepared to substantiate your return with complete records if and when the IRS comes knocking.Back to top

What Is an Audit?

An IRS audit is generally an impartial review of your tax return to determine its accuracy. It is not an accusation of wrongdoing. But it is important to know that you, the taxpayer, have the burden of proving that your return is accurate. The IRS does not have to disprove anything. For example, if you gave $100 worth of old clothing to a charity but did not receive a receipt or have other proof that such a gift was made, you could be in trouble if you're audited. If the IRS questions the deduction and you cannot provide proper evidence that a gift, in such amount, was made, the deduction may be disallowed. Back to top

Why Me?

There are three categories of people most likely to be audited: people in cash businesses, certain professionals and people taking unusually large deductions.

Cash businesses are easy targets for the IRS. Many people in these businesses don't declare all their income, and the IRS knows it. If, for example, your occupation is listed as a hairdresser, waiter or bartender, it may raise a red flag. If you regularly receive cash for your work, be sure to report all the money you earn, including tips. Professionals such as doctors, lawyers and accountants are also targeted. That's because they generally run their own businesses and do their own bookkeeping. Large, unusual deductions are easily picked up by IRS computers. Although these deductions may be justified, they may still raise a red flag. Back to top

Which Deductions Are Likely to Be Challenged?

The IRS mandates that certain deductions must exceed a minimum percentage of your income before you can claim them. For example, medical deductions must exceed 7.5% of your income, and casualty loss deductions must exceed 10% before you can claim them. Only a small number of taxpayers qualify, so if you claim these deductions, keep careful records.

The IRS is also likely to look at your contributions to charity. If you deduct more than the IRS's statistical norms, you may be audited. You must have a receipt (not just a canceled check) for any single donation of $250 or more. If you do not have a receipt, the IRS may disallow the deduction. A home office deduction may also be questioned. If you deduct expenses related to a home office, that office must be used solely for business-related activities. You must also perform the majority of your business in that office. A doctor who uses a room at home to do bookkeeping would not qualify for a deduction because it is not his or her main place of business.

The IRS may also audit if they receive a tip that you are cheating on your tax returns. Back to top

What Now?

If you are notified that you will be audited, take it seriously but don't panic. First, read the letter from the IRS carefully and figure out what you are being asked to do. It may be as simple as signing your return. There are three basic types of audits, and the letter will explain which one applies to you:

A Correspondence Audit is for minor mistakes. A letter from the IRS will tell you what documentation to send them through the mail. Once the IRS is satisfied that it has the correct paperwork, the matter will be closed. A Field Audit is one in which the auditor comes to your business or home to verify the accuracy of your return. This type of audit is usually done if the return is complicated and involves business operations. If your records are neat and in order, it will suggest to the auditor that you are a conscientious business person. An Office Audit requires that you physically appear on a specific date and time at an IRS facility and bring your documentation. Bring only the documents asked for. Otherwise, you will leave yourself open to an examination of all your records, even if they are not in dispute. If you are unable to keep a scheduled audit appointment, phone and reschedule as soon as possible. Back to top

Do I Need Professional Help?

Probably. Taxation is very complicated and technical, and you will benefit from having an expert on your side. If you had an attorney or CPA prepare your return, you may want to bring that person to the audit. Professional tax preparation services will sometimes send someone to accompany you to an audit. Weigh the amount of tax in question against the cost of bringing a professional firm with you. If you need help, call me today to have a no obligation discussion. 619.537.9174.Back to top

Can I Appeal the Findings?

You can either agree or disagree with the auditor's findings. If you agree, your experience with the IRS is finished upon completion of some paperwork and payment of any outstanding amounts. If you disagree with the auditor, the issues in question can be reviewed informally with the auditor's supervisor or you can appeal to the IRS appeals office, which is independent of the local IRS office that conducted the audit. If you do not reach an agreement with the appeals officer, you may take your case to the U.S. Tax Court, U.S. Claims Court or U.S. District Court. The Tax Court generally hears cases before any tax is assessed or paid. The Claims Court and District Court generally hear tax cases only after you have paid the tax and filed a claim for refund.

If you cannot decide to agree or disagree, the IRS has formal procedures to help you make up your mind. Within a few weeks of your audit, you will receive a letter that gives you 30 days to either agree with the auditor or file a formal appeal. The letter will explain the steps to take, depending on your choice of action. If you do not respond to the 30-day letter, or if you do not reach an agreement with the appeals officer, the IRS will send you a "statutory notice of deficiency," giving you 90 days to bring your case to the Tax Court. If you take no action, you lose your right to go to Tax Court, and the IRS will assess the additional tax against you.

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Audit Advice

Don't rush. Respond promptly to a notification of audit, but don't hesitate to ask for a postponement if you need time to gather records. Don't lie. Answer questions truthfully, but don't volunteer information that isn't asked for. Be friendly. A positive attitude will go a long way. Keep good records. The burden of proof is on you. Keep records for seven years. Educate yourself. Read IRS Publication 1, Your Rights as a Taxpayer.  Don't let the auditor keep your original documents. Appeal the audit if you disagree with the findings. Come clean. If you know one of your deductions is unsupportable, admit it and pay the tax.

If you have prepared your tax return truthfully and have saved receipts to back up your deductions, notice of an IRS audit should not make you unduly nervous. IRS employees, after all, are only doing the job we pay them to do.

 

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IRS audits fewer businesses, more people

Researchers say the numbers show a flaw in the war on corporate scofflaws. The IRS says that ignores the reasons.

By Associated Press Published April 12, 2004 Firms  

 

WASHINGTON - The Internal Revenue Service audited fewer corporations, small businesses and partnerships last year but more individual taxpayers, according to a study of government data.

Syracuse University's Transactional Records Access Clearinghouse, in its analysis of IRS data made available Sunday, concluded that the audit rate for businesses of all sizes slid slightly last year to 2.1 audits for every 1,000 businesses, from 2.2 audits per 1,000 businesses the previous year.

At the same time, the IRS audited 14 percent more individual tax returns. The audit rate for individuals increased last year to 6.5 audits for every 1,000 taxpayers.

Official audit rates released by the IRS last month show a similar trend.

Researchers said the declining audits of businesses exposes a flaw in the administration's tough stance against corporate wrongdoing.

"These and a number of other measures - documented by the agency's own data - indicate that the actual performance of the IRS differs in significant ways from some of the Bush administration claims when it comes to cracking down on corporate scofflaws," the report said.

Researchers point specifically to declining audits of the largest corporations and a type of business organization that passes income and taxes on to its shareholders or partners - an arrangement found to have been improperly used in some corporate accounting scandals.

IRS commissioner Mark Everson said in an interview that the agency's broad attack on corporate tax evasion does not show up in the audit numbers.

"Am I satisfied with the numbers? No. I want to see them go up," he said. "I'm not surprised that that's lagging the other indicators. And while I think it's an important indicator, it doesn't tell the whole story."

Some advocates said the trend appears troubling.

"What struck me first was the commissioner earlier this week said that they'd increased enforcement and then I look at these numbers and say, "What is he talking about?"' said David Keating, senior counselor for the National Taxpayers Union. "It really opens up a credibility gap."

In a detailed written response, the IRS said the study ignores the reasons for the decline in corporate audits and other enforcement actions taken against businesses.

The IRS said the decline can be attributed partly to the explosive growth in tax shelters, which make audits more intricate and time-consuming. Tax collectors worked more than 2,200 corporate tax shelter returns in 2003. Each takes an average 71/2 months longer than other corporate returns, and their number is growing.

The agency's work force has shrunk while its workload has grown, the IRS said.

The agency has been criticized for shifting money from tax enforcement to pay for other administrative costs. Everson said he has reversed that practice and expects the agency will have hired 250 more agents by autumn. If the agency gets the budget requested by the president, it will hire an additional 600 agents by the same time next year, he said.

Audits and other enforcement activities declined sharply in the late 1990s when Congress mandated that tax collectors pay more attention to customer service.

The Syracuse University study concludes that audits of individuals increased last year. Much of the increase occurred in correspondence audits, not face-to-face meetings between revenue agents and taxpayers.

Researchers said the audits "by their very nature are comparatively superficial."

The IRS said correspondence audits are faster and cheaper than traditional audits. The average additional tax assessed in a correspondence audit was $3,338 last year.

[Last modified April 12, 2004, 01:05:27] Firms  

NEW YORK (CNN/Money) - The IRS announced Thursday that the number of tax-return audits in 2005 increased by over 20 percent, to 1.22 million, the highest number in seven years.

In addition, increased audits led to a 10 percent growth in "enforcement revenues," to $47.3 billion.

IRS Commissioner Mark W. Everson said the better enforcement stemmed from increased efforts to train employees to comply with the 1998 IRS reform act.

"Part of the increases comes from improved procedures and part from a new emphasis on enforcement," he said.

Audits of high-income individuals -- with salaries more than $100,000 -- reached their highest level in 10 years, at 221,000.

Everson said he felt that the coverage in this category was still low compared to his goals, with only 1 in 63 high-income individuals being audited.

After several years of decline, audits of small corporations more than doubled, to almost 18,000.

And audits of corporations with assets of over $10 million increased 14 percent, to nearly 11,000.

Everson also noted that audit rates were still below their mid-1990s highs, but had increased dramatically from just a few years ago.

"We do not have overall audit targets. We have certain priorities -- high-income individuals and corporations who might use tax shelters, for instance," he said. "Our goal is to make sure that fairness resonates throughout the system. The average American needs to know that when they pay, their neighbors and competitors are doing the same."

The agency also reported that levies and liens had recovered to levels last seen in 1998, and that seizures were up slightly from 2004.

The IRS budget for fiscal year 2005 was $10.2 billion, and President Bush has recommended an increase to $10.7 billion for 2006.

Types of Audits There are many ways the Internal Revenue Service determines if an audit is going to occur on your tax return. Some of them are as follows:

1. The Differential Income Factor (DIF) Method

Each tax return that is submitted to the Internal Revenue Service is given a score based on the amount of income you report and the deductions you claim on your tax return. If the score your tax return receives exceeds a particular threshold for your income, then the Internal Revenue Service could select your return for audit. For instance, if you earn approximately $50,000 and you have medical expenses in excess of $7,000, this would give you a higher DIF score than someone who has medical expenses of only $4,000.

Further, if you report home mortgage interest of approximately $15,000 and your income is $35,000 then your DIF score is higher than someone with the same income showing only $7,000 in home mortgage interest. The higher the expenses relative to the income, the higher the DIF score.

2. The Information Returns Factor Method

All W-2s and 1099s are submitted to the Internal Revenue Service every year. Then the Internal Revenue Service records the social security numbers from these documents and matches them to the social security numbers on the tax returns that are submitted. If you have received a 1099 INT (Interest Income) showing $1,000 from a bank or credit union but only report $500 worth of interest income on your tax return, the Internal Revenue Service will catch this. They will match the 1099 INT against your tax return, based on your social security number, and they will see that you underreported your interest income by $500. This will select your tax return for audit.

3. The Random Selection Method

All tax returns are submitted into a computer random number generator. The tax returns with the high DIF scores and non-matched information are taken out. A certain number of tax returns are picked at random to make sure the needed four million tax returns are audited on an annual basis.

These are some of the methods the Internal Revenue Service uses to determine who is being audited. Once these tax returns are selected for audit, they are assigned to Internal Revenue Agents and Revenue Officers. This is known as assigning cases or inventory to the auditor.

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Find out what the IRS knows about you

When your tax return is selected for audit, it is given a certain transaction code (TC). The code identifies it as being selected for audit. Each of us who submits tax returns to the Internal Revenue Service has a record that is kept by the IRS for many years. These records are known as our INDIVIDUAL MASTER FILE (IMF).

Since 1974 the Freedom of Information Act has allowed us to access this IMF. The IMF will give information on a computer generated report about each taxpayer the IRS has on record. For instance, if you have been selected for audit, the IMF will tell you. It will also tell you if your tax return has been received by the IRS, if additional taxes have been assessed, and what the final collection date is for the tax return and many other codes that are interrupted from the IMF.

Since cases (inventory) are assigned to agents up to six months before the taxpayer is even notified of an audit, a copy of your IMF, can tell you whether or not your tax return has been selected for audit.

 

What to do if you get a notice from the IRS

If you receive a notice from the IRS, don't ignore it. You can rest assured that the IRS will not just go away. All contacts by the IRS should be handled promptly. Unless you are an accomplished IRS "fighter," you would be wise to seek professional assistance from the very first correspondence.

If you are contacted by any government agency concerning your tax matters, your first call should be to our firms. Our firm will take care of it so that you can get on with your business.

IRS Wage Garnishments

A wage garnishment stays in effect until the tax is fully paid or until the IRS agrees to release the wage garnishment. IRS frequently uses wage garnishments to collect taxes owed through your employer. Once a wage garnishment is filed, the employer is required to collect a percentage of each paycheck. IRS wage garnishment requires that a large percentage of taxpayer's wages be turned over directly to the IRS.

Below are the sections from the IRS Internal Revenue Manual that deal with IRS levies and wage garnishments.

5.11.5.1 (05-05-1998) Introduction

An individual's wages, salary, and other income can be levied. Wages and salary include payment for personal services in a work relationship.

5.11.5.2 (05-05-1998) Employer Threatens to Fire Taxpayer Because of a Levy

Sometimes an employer threatens to fire an employee to avoid handling a levy. This might be a violation of 15 USC 1674.

If the employer fires the taxpayer because of this, the employer might be fined 00. There may also be a one year prison term.

Refer the taxpayer to the Wage and Hour Division of the Department of Labor (DOL). DOL, not IRS, must decide if the employer violated the law.

5.11.5.3 (09-04-1998) Continuous Effect of Levy

Unlike other levies, a levy on wages and salary has a continuous effect. It attaches future paychecks, until the levy is released. Wages and salary include fees, bonuses, and commissions. All other levies only attach property and rights to property that exist when the levy is served.

Example: If a bank account is levied, it only reaches money in the account when the levy is served. It does not affect money deposited later.

When other income is levied, the levy only reaches money the taxpayer has a fixed and determinable right to. Also see 6.1, about retirement and benefit income.

Example: A levy is served to take an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.

Also, see 6.11.1 when a levy is served on a non-liable spouse in a community property state.

5.11.5.4 (05-05-1998) Exempt Amount

Part of the taxpayer's wages, salary, and other income is exempt from levy.

The weekly exempt amount is:

The total of the taxpayer's standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served.

Then, this total is divided by 52.

Income that is not paid weekly is prorated, so the same amount is exempt.

In addition, the amount the taxpayer needs to pay court ordered child support is exempt. However, the order must be before the date of the levy.

Note: The support order can be from a court or administrative process under the laws and procedures of a state, territory or possession.

Reminder: If support is allowed, the same child can not be claimed as an exemption for figuring the exempt amount. See (2)a.

If the taxpayer has already shown proof of the required child support payment.

Then write, "Under section 6334(a)(8) of the Internal Revenue Code, $ ____________________ is exempt from this levy."

If the taxpayer shows proof of the child support after the levy is served.

Then release enough of the levy, so the support can be paid.

The taxpayer is not entitled to the support exemption, unless the support is being paid.

Consider getting the taxpayer to have the payment withheld and sent directly to the person with custody.

Instead, the taxpayer may make the payment through the Service, which will forward the payment. When there is no open assignment, have the payments sent through Case Processing Support. This may happen if the payments are being monitored in the service center.

5.11.5.4.1 (05-05-1998) Claiming the Exempt Amount

The Notice of Levy on Wages, Salary, and Other Income includes a Statement of Exemptions and Filing Status. The employer gives this to the taxpayer to complete and return within three days. If it is not received by then, the amount is figured as if the person is married filing separate with one exemption. The taxpayer can give the statement to the employer later to change the exempt amount.

Note: The employer needs to use this Statement rather than the employee's W-4. Taxpayers may claim different exemptions for withholding from those claimed on their return.

Publication 1494 is sent with the levy to help figure the exempt amount.

The taxpayer can give a new statement to the employer later to have the exempt amount computed again.

Example: The taxpayer's filing status or personal exemptions may change.

Example: There may be a change in exempt rates in a new year.

The statement is completed under penalty of perjury. Generally, accept the information on the statement, unless there is reason to question it. If it is disallowed, notify the employer and the taxpayer in writing. The taxpayer can show evidence that the statement is right and ask for a manager's review.

5.11.5.4.2 (05-05-1998) Employers with Centralized Payrolls

Some employers have a centralized payroll, so the payroll is not handled where most employees work.

Consider mailing the statement of exemptions and filing status directly to the taxpayer. This avoids the delay of the employer remailing it.

Send Part 1 of the levy and Notice 484 to the employer.

Send the other parts of the levy and Notice 483 to the taxpayer.

5.11.5.4.3 (05-05-1998) Joint Liabilities

For joint liabilities, generally, levy the income of the spouse with the larger income.

Levy both incomes only in flagrant cases of neglect or refusal to pay. Get manager's approval to do this. If taxpayers are separated, consider collecting from the second spouse before allowing the entire amount to be paid by levy on one person's income.

IF the taxpayers are filing as married filing jointly & both taxpayers' incomes are levied

Then only one of them can claim the standard deduction for figuring the exempt amount.

If the taxpayers are filing with any other filing status & both taxpayers' incomes are levied

Then both can claim the standard deductions for their filing status.

If the taxpayers are remarried and filing as married filing jointly with the new spouses & both taxpayers' incomes are levied

Then both can claim the standard deductions for their filing status.

When both spouses' incomes are levied, neither spouse can claim the other one as a personal exemption.

5.11.5.4.4 (05-05-1998) Taxpayers with More Than One Source of Income

Consider income from all sources when a taxpayer has more than one source.

If the taxpayer is getting the exempt amount from one source of income that is levied & another source of income is levied, too.

Then include Letter 1697(P) with the second levy to tell the employer not to allow any exempt amount.

If the taxpayer has a source of income that is not levied & that source of income is at least as much as the exempt amount.

Letter 1697(P) can be included with a levy on another source of income to tell the employer not to allow the exempt amount.

See Exhibit 5.11.5-1, for a copy of Letter 1697(P).

5.11.5.4.5 (05-05-1998) Taxpayer's Payroll Deductions

A levy legally attaches the taxpayer's gross income minus the exempt amount. However, see Policy P-5-29. By policy, a levy only attaches the taxpayer's usual take home pay.

Exception: Voluntary deductions can be disallowed, if they are so large they defeat the levy.

Generally, allow the taxpayer to maintain deductions they already have when the levy is served. Notify the employer and the taxpayer of deductions that must stop while the levy is in effect. The taxpayer can ask for a manager's review of this.

Example: The taxpayer has a deduction used to buy shares in a mutual fund.

Generally, employer's should not allow new voluntary deductions after receiving the levy. Exceptions can be allowed on a case by case basis, with the Service's approval.

Example: The taxpayer can not join the company insurance plan, until he is on the job six months. The levy is served before then. The amount of the premium is not unreasonable.

The method that the taxpayer is paid is not relevant to take home pay. Direct deposit is not a payroll deduction.

5.11.5.4.6 (07-26-2002) Severance Pay

The taxpayer may leave a job and get severance pay.

If severance pay is attributable to pay for a period of time.

Then the exempt amount is based on that time period.

If severance pay is not attributable to pay for a period of time.

Then the amount exempt for one pay period is used.

Example: Severance pay is one week's pay for each year on the job. A taxpayer on the job for ten years gets ten weeks' severance pay. The taxpayer gets a paycheck every two weeks for ten weeks. Two weeks' exempt amount is subtracted from each check, just like the person was still working for ten weeks.

Example: The same facts as above, but the taxpayer gets the amount in one payment. The payment is attributable to ten weeks' pay. The employer is just making an "advance" payment, instead of writing a series of checks. The taxpayer gets ten weeks' exempt amount.

Example: A taxpayer gets a lump sum that is not attributable to a period of time. This could be, for example, an incentive payment to retire early. The exempt amount is based on the taxpayer's regular pay period. If there is no regular pay period, use one week's exempt amount. Similarly, if the taxpayer gets 00 for each year on the job, this is not attributable to pay periods. A person getting ,000 for being on the job ten years does NOT get ten years' exempt amount.

This assumes the person is not already getting the exempt amount for a pay period at the same time. If both are being received, the taxpayer does not get the exempt amount twice.

Example: The taxpayer is paid for both the last pay period worked and severance on the last pay day. The taxpayer only gets the exempt amount once.

5.11.5.5 (07-26-2002) Levy Payments

Credit levy payments on the date they are received. Apply the money in the most advantageous way to the government. Generally, apply it to the oldest assessment, first. The taxpayer can not designate how to apply the money, because this is not a voluntary payment.

Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy, if they are not levy proceeds.

Example: A wage levy prompts the taxpayer to pay the amount owed, to get the levy released. Code this payment with DPC 15.

Payments for these levies may be small. Decide if the amount owed should be paid from the levy proceeds. When the payments are small compared to the amount owed, though, consider other enforced collection.

If Payments are being monitored in CFf & one more payment is expected to pay off the amount owed.

Then use Form 668-D to give the employer a payoff figure and release the levy after that is paid.

If at least two payments are received & no additional collection is warranted.

Then consider transferring the case to the service center for monitoring. Get management approval, first. See 2.4.9 and 4.3.3.5 of IRM 105.1 Collecting Contact Handbook.

Section 7216 Frequently Asked Questions

 

These Frequently Asked Questions (FAQs) present introductory information about revised regulations and a new revenue procedure for complying with Internal Revenue Code Section (IRC §) 7216. It is intended to alert tax return preparers and other persons who work with preparers and taxpayers that important new rules and regulations apply to them and the way they do business. Readers should not rely solely on this Q&A to answer questions. Instead please refer to the recently revised Treasury Regulations, Treas. Reg. §301.7216, and recently enacted Revenue Procedure 2008-35  for complete authoritative information.  If you have other questions, please seek the advice of counsel.

Q1 What is §7216 and why is it an issue now? A1  Internal Revenue Code §7216 is a criminal provision enacted by the U.S. Congress in the 1971 that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information.  A convicted preparer may be fined not more than $1,000 or imprisoned not more than one year or both, for each violation.  The Secretary of Treasury is permitted to grant exceptions to this general prohibition by issuing regulations.  Treas. Reg. §301.7216 had been  substantially unchanged for over 30 years and did not address the modern return preparation marketplace, particularly electronic filing and the cross-marketing of financial and commercial products and services during the return preparation experience.  After a long process that included many public suggestions and comments, updated regulations were published on January 7 and July 2, 2008 and apply to uses and disclosures beginning on January 1, 2009.

Q2 How are civil penalties applicable to the disclosure of tax return information? A2 Internal Revenue Code §6713 imposes a civil penalty of $250 on any person who is engaged in the business of preparing, or providing services in connection with the preparation of returns of tax, or any person who for compensation prepares a return for another person, and who

Discloses any information furnished to him for, or in connection with, the preparation of any such return, or Uses any such information for any purpose other than to prepare, or assist in preparing, any such return.  Imposition of the penalty under Internal Revenue Code §6713 does not require that the disclosure be knowing or reckless as it does under Internal Revenue Code §7216.

Q3 What is a “tax return preparer?” A3 Tax return preparers are persons that participate in the preparation of tax returns for taxpayers, including but not limited to:

Return preparers that are in business or hold themselves out as preparers* Casual preparers that are compensated Electronic return originators** Electronic return transmitters** Intermediate Service Providers** Software Developers** Reporting Agents**

The definition also extends to those that assist others in preparing returns or performing auxiliary services in connection with preparing returns, or are employed by preparers and perform auxiliary services in connection with the preparation of tax returns.

NOTE: *   This includes volunteer preparers that participate in programs like VITA       and TCE. ** These persons are part of the electronic filing arena and are collectively      known as e-file providers (see also Revenue Procedure 2007-40).

Q4 Have the new regulations changed the definition of tax return preparer? A4 The new regulations clarify that e-file providers are considered tax return preparers and persons that perform auxiliary services for e-file providers in connection with tax return preparation are covered by the statute and regulations.  The regulations also clarify that contractors receiving tax return information (See 5 below) from tax return preparers are considered tax return preparers subject to the same provisions and penalties.   Tax return preparers that engage contractors and disclose tax return information to them are required to inform contractors of the rules and consequences in a written notice.  (See also questions 12-17 below).

Q5 What is “tax return information?” A5  Tax return information is all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns.  It also includes all computations, worksheets, and printouts preparers create; correspondence from IRS during the preparation, filing and correction of returns; statistical compilations of tax return information; and tax return preparation software registration information. All tax return information is protected by §7216 and the regulations.

Q6 What are “disclosures” of tax return information? A6  Disclosure of tax return information is the act of making tax return information known to any person in any manner whatsoever.  The regulations authorize two types of disclosures:

Certain permissible disclosures without taxpayer consent Disclosures requiring taxpayer consent

The regulations provide exceptions allowing tax return preparers to disclose tax return information without a taxpayer’s prior written consent under certain circumstances: e.g., disclosures to the IRS, other taxing jurisdictions or the courts; disclosures to other U.S.-based tax return preparers that assist in preparing the return; and disclosures for the purpose of obtaining legal advice.  These and other exceptions can be found in Treas. Reg. §301.7216-2.

All other disclosures not specifically authorized require tax return preparers to secure from taxpayers advance signed consents (see 7 below) authorizing the disclosures.

Q7 What are “consents to disclose tax return information?” A7 Consents to disclose tax return information are paper or electronic documents that contain certain specific information including the names of the tax return preparer and the taxpayer and that specify the nature of the disclosure(s), to whom the disclosures will be made, and details on the data to be disclosed.  Consents are valid only if they are a made by the taxpayer knowingly and voluntarily and are signed and dated by the taxpayer in pen-and-ink or electronically.  Consent forms must include certain language and warnings.  Refer to Treas. Reg. §301.7216-3(a)(3) and Revenue Procedure 2008-35 for complete information.

Q8 When and how does a tax return preparer obtain consent to disclose tax return information? A8 Tax return preparers must obtain consent to disclose tax return information before returns are provided to the taxpayer for signature and before tax return information is disclosed.  The rules for obtaining consents are found in Treas. Reg. 301.7216-3 and Revenue Procedure 2008-35.

Q9 What are “uses” of tax return information? A9 Uses of tax return information are occurrences where tax return preparers refer to, or rely on, tax return information as the basis to take or permit actions.  The regulations authorize two types of uses:

Certain permissible uses without taxpayer consent Uses requiring taxpayer “consent to use tax return information”

The regulations authorize tax return preparers to use specified tax return information without a taxpayer’s prior written consent under certain circumstances: e.g., to create lists for solicitation of tax return business; to produce statistical information in connection with tax return preparation business.  These and other exceptions can be found in Treas. Reg. §301.7216-2.

All other uses not specifically authorized require tax return preparers to secure from taxpayers advance signed consents (see 10 below) authorizing the uses. 

Q10 What are “consents to use tax return information?” A10 Consents to use tax return information are paper or electronic documents that contain certain specific information including the names of the tax return preparer and the taxpayer and that describe the particular use authorized, identify the product or service for which the tax return information will be used, and detail the data to be used.  Consents are valid only if they are made by the taxpayer knowingly and voluntarily and are signed and dated by the taxpayer in pen-and-ink or electronically.  Consent forms must include certain language and warnings.  Refer to Treas. Reg. §301.7216-3(a)(3) and Revenue Procedure 2008-35 for complete information.

Q11 When and how does a tax return preparer obtain consent to use tax return information? A11 Tax return preparers must obtain consent to use tax return information before tax return information is used and before returns are provided to the taxpayer for signature.  The rules for obtaining consents are found in Treas. Reg. §301.7216-3(b) and Revenue Procedure 2008-35.

Q12 Do consents to disclose or use tax return information have expiration dates? A12 Yes.  The taxpayer and tax return preparer may agree to specify the period of time the consent will be effective and include the period in the consent form.  If no period is specified the regulations state that the consent will be effective for a period of one year from the date the taxpayer signed the consent.

Q13 Have the rules changed for obtaining consents to disclose or use tax return information? A13  Yes. The basic rules are still provided by Treas. Reg. §301.7216-3, while additional rules can be found in Revenue Procedure 2008-35. These rules include the following notable changes:

Multiple consents to disclose are permitted on one consent form Multiple consents to use are permitted on one consent form Consent form format requirements have changed Certain prescribed language and warnings are now required Electronic consent forms are expressly permitted Electronic signatures on consent forms are expressly permitted Disclosure of social security numbers outside the U.S. must satisfy special requirements.

Refer to Treas. Reg. §301.7216-3 and Revenue Procedure 2008-35 for other changes and complete information.

Q14 What are the special rules for disclosing tax return information outside the United States? A14 Disclosing tax return information to another tax return preparer that is assisting in the preparation of the return or providing auxiliary services in connection with preparing the return generally does not require the consent of the taxpayer.  However, if the other tax return preparer is located outside the United States or any territory or possession of the United States, the taxpayer must agree and sign a form consenting to the disclosure.  See Revenue Procedure 2008-35, section 4.04(1)(e) for specific language that must be included in the consent form.  If the tax return information to be disclosed includes social security numbers, (See Q3).

Q15 What are the special rules for disclosing social security numbers outside the United States? A15 Generally, tax return preparers may not obtain consents to disclose social security numbers to tax return preparers located outside the United States or any territory or possession of the United States.  If social security numbers are included in documents for which the tax return preparer has obtained the consent of the taxpayer to disclose the tax return preparer must redact or mask any social security number before disclosing the tax return information to a return preparer outside the United States.  There is an exception.  Social security numbers may be disclosed to tax return preparers located outside the United States if taxpayer consent is obtained and both the sending and receiving tax return preparers maintain adequate data protection safeguards defined in Revenue Procedure 2008-35, section 4.07.  See also Revenue Procedure 2008-35, section 4.04(1)(e)(ii) for specific language that must be included in the consent form.

Q16 Are the staffs of banks and credit unions that receive copies of tax returns in connection with applications for mortgages included within the definition of tax return preparers?  A16 No.  They are ordinarily not covered because they ordinarily are not preparing a taxpayer’s return, providing auxiliary services in connection with the preparation of tax returns, being compensated for preparing tax returns, or employed by a tax return preparer.   Q17 Are the people who prepare Medicaid applications deemed subject to the regulations because they use tax return data in preparing Medicaid applications? A17 No.  (See A16).   Q18 Are the members of co-op boards of directors subject to the regulations because they require a tax return in the package of documents that must be included when seeking approval to purchase a co-op?  A18 No.  (See A16).   Q19 Is a fee-based financial planner subject to the regulations because they review copies of tax return in order to create a financial plan? A19 No.  (See A16).   Q20 Are financial aid advisors included because they utilize tax return data? A20 No.  (See A16).

 == First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify ==

IR-2009-108

WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

'''Income Limits Rise'''

The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

'''New Requirements'''

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

* Dependents are not eligible to claim the credit.
* No credit is available if the purchase price of a home is more than $800,000.
* A purchaser must be at least 18 years of age on the date of purchase.

'''For Members of the Military'''

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011. Return to top

T read Sec 11 of the Act Click Here

OTT09480 S.L.C.

AMENDMENT NO.llll Calendar No.lll

Purpose: In the nature of a substitute.

IN THE SENATE OF THE UNITED STATES—111th Cong., 1st Sess.

H. R. 3548

To amend the Supplemental Appropriations Act, 2008 to

provide for the temporary availability of certain additional

emergency unemployment compensation, and for

other purposes.

Referred to the Committee on llllllllll and

ordered to be printed

Ordered to lie on the table and to be printed

AMENDMENT IN THE NATURE OF A SUBSTITUTE intended

to be proposed by lllllll

Viz:

1 Strike all after the enacting clause and insert the fol2

lowing:

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Worker, Homeowner5

ship, and Business Assistance Act of 2009’’.

6 SEC. 2. REVISIONS TO SECOND-TIER BENEFITS.

7 (a) IN GENERAL.—Section 4002(c) of the Supple8

mental Appropriations Act, 2008 (Public Law 110–252;

9 26 U.S.C. 3304 note) is amended—

2

OTT09480 S.L.C.

1 (1) in paragraph (1)—

2 (A) in the matter preceding subparagraph

3 (A), by striking ‘‘If’’ and all that follows

4 through ‘‘paragraph (2))’’ and inserting ‘‘At

5 the time that the amount established in an indi6

vidual’s account under subsection (b)(1) is ex7

hausted’’;

8 (B) in subparagraph (A), by striking ‘‘50

9 percent’’ and inserting ‘‘54 percent’’; and

10 (C) in subparagraph (B), by striking ‘‘13’’

11 and inserting ‘‘14’’;

12 (2) by striking paragraph (2); and

13 (3) by redesignating paragraph (3) as para14

graph (2).

15 (b) EFFECTIVE DATE.—The amendments made by

16 this section shall apply as if included in the enactment

17 of the Supplemental Appropriations Act, 2008, except that

18 no amount shall be payable by virtue of such amendments

19 with respect to any week of unemployment commencing

20 before the date of the enactment of this Act.

21 SEC. 3. THIRD-TIER EMERGENCY UNEMPLOYMENT COM22

PENSATION.

23 (a) IN GENERAL.—Section 4002 of the Supplemental

24 Appropriations Act, 2008 (Public Law 110–252; 26

3

OTT09480 S.L.C.

1 U.S.C. 3304 note) is amended by adding at the end the

2 following new subsection:

3 ‘‘(d) THIRD-TIER EMERGENCY UNEMPLOYMENT

4 COMPENSATION.—

5 ‘‘(1) IN GENERAL.—If, at the time that the

6 amount added to an individual’s account under sub7

section (c)(1) (hereinafter ‘second-tier emergency

8 unemployment compensation’) is exhausted or at any

9 time thereafter, such individual’s State is in an ex10

tended benefit period (as determined under para11

graph (2)), such account shall be further augmented

12 by an amount (hereinafter ‘third-tier emergency un13

employment compensation’) equal to the lesser of—

14 ‘‘(A) 50 percent of the total amount of

15 regular compensation (including dependents’ al16

lowances) payable to the individual during the

17 individual’s benefit year under the State law; or

18 ‘‘(B) 13 times the individual’s average

19 weekly benefit amount (as determined under

20 subsection (b)(2)) for the benefit year.

21 ‘‘(2) EXTENDED BENEFIT PERIOD.—For pur22

poses of paragraph (1), a State shall be considered

23 to be in an extended benefit period, as of any given

24 time, if—

4

OTT09480 S.L.C.

1 ‘‘(A) such a period would then be in effect

2 for such State under such Act if section 203(d)

3 of such Act—

4 ‘‘(i) were applied by substituting ‘4’

5 for ‘5’ each place it appears; and

6 ‘‘(ii) did not include the requirement

7 under paragraph (1)(A) thereof; or

8 ‘‘(B) such a period would then be in effect

9 for such State under such Act if—

10 ‘‘(i) section 203(f) of such Act were

11 applied to such State (regardless of wheth12

er the State by law had provided for such

13 application); and

14 ‘‘(ii) such section 203(f)—

15 ‘‘(I) were applied by substituting

16 ‘6.0’ for ‘6.5’ in paragraph (1)(A)(i)

17 thereof; and

18 ‘‘(II) did not include the require19

ment under paragraph (1)(A)(ii)

20 thereof.

21 ‘‘(3) LIMITATION.—The account of an indi22

vidual may be augmented not more than once under

23 this subsection.’’.

24 (b) CONFORMING AMENDMENT TO NON-AUGMENTA25

TION RULE.—Section 4007(b)(2) of the Supplemental Ap5

OTT09480 S.L.C.

1 propriations Act, 2008 (Public Law 110–252; 26 U.S.C.

2 3304 note) is amended—

3 (1) by striking ‘‘then section 4002(c)’’ and in4

serting ‘‘then subsections (c) and (d) of section

5 4002’’; and

6 (2) by striking ‘‘paragraph (2) of such section)’’

7 and inserting ‘‘paragraph (2) of such subsection (c)

8 or (d) (as the case may be))’’.

9 (c) EFFECTIVE DATE.—The amendments made by

10 this section shall apply as if included in the enactment

11 of the Supplemental Appropriations Act, 2008, except that

12 no amount shall be payable by virtue of such amendments

13 with respect to any week of unemployment commencing

14 before the date of the enactment of this Act.

15 SEC. 4. FOURTH-TIER EMERGENCY UNEMPLOYMENT COM16

PENSATION.

17 (a) IN GENERAL.—Section 4002 of the Supplemental

18 Appropriations Act, 2008 (Public Law 110–252; 26

19 U.S.C. 3304 note), as amended by section 3(a), is amend20

ed by adding at the end the following new subsection:

21 ‘‘(e) FOURTH-TIER EMERGENCY UNEMPLOYMENT

22 COMPENSATION.—

23 ‘‘(1) IN GENERAL.—If, at the time that the

24 amount added to an individual’s account under sub25

section (d)(1) (third-tier emergency unemployment

6

OTT09480 S.L.C.

1 compensation) is exhausted or at any time there2

after, such individual’s State is in an extended ben3

efit period (as determined under paragraph (2)),

4 such account shall be further augmented by an

5 amount (hereinafter ‘fourth-tier emergency unem6

ployment compensation’) equal to the lesser of—

7 ‘‘(A) 24 percent of the total amount of

8 regular compensation (including dependents’ al9

lowances) payable to the individual during the

10 individual’s benefit year under the State law; or

11 ‘‘(B) 6 times the individual’s average week12

ly benefit amount (as determined under sub13

section (b)(2)) for the benefit year.

14 ‘‘(2) EXTENDED BENEFIT PERIOD.—For pur15

poses of paragraph (1), a State shall be considered

16 to be in an extended benefit period, as of any given

17 time, if—

18 ‘‘(A) such a period would then be in effect

19 for such State under such Act if section 203(d)

20 of such Act—

21 ‘‘(i) were applied by substituting ‘6’

22 for ‘5’ each place it appears; and

23 ‘‘(ii) did not include the requirement

24 under paragraph (1)(A) thereof; or

7

OTT09480 S.L.C.

1 ‘‘(B) such a period would then be in effect

2 for such State under such Act if—

3 ‘‘(i) section 203(f) of such Act were

4 applied to such State (regardless of wheth5

er the State by law had provided for such

6 application); and

7 ‘‘(ii) such section 203(f)—

8 ‘‘(I) were applied by substituting

9 ‘8.5’ for ‘6.5’ in paragraph (1)(A)(i)

10 thereof; and

11 ‘‘(II) did not include the require12

ment under paragraph (1)(A)(ii)

13 thereof.

14 ‘‘(3) LIMITATION.—The account of an indi15

vidual may be augmented not more than once under

16 this subsection.’’.

17 (b) CONFORMING AMENDMENT TO NON-AUGMENTA18

TION RULE.—Section 4007(b)(2) of the Supplemental Ap19

propriations Act, 2008 (Public Law 110–252; 26 U.S.C.

20 3304 note), as amended by section 3(b), is amended—

21 (1) by striking ‘‘and (d)’’ and inserting ‘‘, (d),

22 and (e) of section 4002’’; and

23 (2) by striking ‘‘or (d)’’ and inserting ‘‘, (d), or

24 (e) (as the case may be))’’.

8

OTT09480 S.L.C.

1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply as if included in the enactment

3 of the Supplemental Appropriations Act, 2008, except that

4 no amount shall be payable by virtue of such amendments

5 with respect to any week of unemployment commencing

6 before the date of the enactment of this Act.

7 SEC. 5. COORDINATION.

8 Section 4002 of the Supplemental Appropriations

9 Act, 2008 (Public Law 110–252; 26 U.S.C. 3304 note),

10 as amended by section 4, is amended by adding at the

11 end the following new subsection:

12 ‘‘(f) COORDINATION RULES.—

13 ‘‘(1) COORDINATION WITH EXTENDED COM14

PENSATION.—Notwithstanding an election under

15 section 4001(e) by a State to provide for the pay16

ment of emergency unemployment compensation

17 prior to extended compensation, such State may pay

18 extended compensation to an otherwise eligible indi19

vidual prior to any emergency unemployment com20

pensation under subsection (c), (d), or (e) (by reason

21 of the amendments made by sections 2, 3, and 4 of

22 the Worker, Homeownership, and Business Assist23

ance Act of 2009), if such individual claimed ex24

tended compensation for at least 1 week of unem25

ployment after the exhaustion of emergency unem9

OTT09480 S.L.C.

1 ployment compensation under subsection (b) (as

2 such subsection was in effect on the day before the

3 date of the enactment of this subsection).

4 ‘‘(2) COORDINATION WITH TIERS II, III, AND

5 IV.—If a State determines that implementation of

6 the increased entitlement to second-tier emergency

7 unemployment compensation by reason of the

8 amendments made by section 2 of the Worker,

9 Homeownership, and Business Assistance Act of

10 2009 would unduly delay the prompt payment of

11 emergency unemployment compensation under this

12 title by reason of the amendments made by such

13 Act, such State may elect to pay third-tier emer14

gency unemployment compensation prior to the pay15

ment of such increased second-tier emergency unem16

ployment compensation until such time as such

17 State determines that such increased second-tier

18 emergency unemployment compensation may be paid

19 without such undue delay. If a State makes the elec20

tion under the preceding sentence, then, for pur21

poses of determining whether an account may be

22 augmented for fourth-tier emergency unemployment

23 compensation under subsection (e), such State shall

24 treat the date of exhaustion of such increased sec25

ond-tier emergency unemployment compensation as

10

OTT09480 S.L.C.

1 the date of exhaustion of third-tier emergency unem2

ployment compensation, if such date is later than

3 the date of exhaustion of the third-tier emergency

4 unemployment compensation.’’.

5 SEC. 6. TRANSFER OF FUNDS.

6 Section 4004(e)(1) of the Supplemental Appropria7

tions Act, 2008 (Public Law 110–252; 26 U.S.C. 3304

8 note) is amended by striking ‘‘Act;’’ and inserting ‘‘Act

9 and sections 2, 3, and 4 of the Worker, Homeownership,

10 and Business Assistance Act of 2009;’’.

11 SEC. 7. EXPANSION OF MODERNIZATION GRANTS FOR UN12

EMPLOYMENT RESULTING FROM COMPEL13

LING FAMILY REASON.

14 (a) IN GENERAL.—Clause (i) of section 903(f)(3)(B)

15 of the Social Security Act (42 U.S.C. 1103(f)(3)(B)) is

16 amended to read as follows:

17 ‘‘(i) One or both of the following of18

fenses as selected by the State, but in

19 making such selection, the resulting

20 change in the State law shall not supercede

21 any other provision of law relating to un22

employment insurance to the extent that

23 such other provision provides broader ac24

cess to unemployment benefits for victims

25 of such selected offense or offenses:

11

OTT09480 S.L.C.

1 ‘‘(I) Domestic violence, verified

2 by such reasonable and confidential

3 documentation as the State law may

4 require, which causes the individual

5 reasonably to believe that such indi6

vidual’s continued employment would

7 jeopardize the safety of the individual

8 or of any member of the individual’s

9 immediate family (as defined by the

10 Secretary of Labor); and

11 ‘‘(II) Sexual assault, verified by

12 such reasonable and confidential docu13

mentation as the State law may re14

quire, which causes the individual rea15

sonably to believe that such individ16

ual’s continued employment would

17 jeopardize the safety of the individual

18 or of any member of the individual’s

19 immediate family (as defined by the

20 Secretary of Labor).’’.

21 (b) EFFECTIVE DATE.—The amendment made by

22 this section shall apply with respect to State applications

23 submitted on and after January 1, 2010.

12

OTT09480 S.L.C.

1 SEC. 8. TREATMENT OF ADDITIONAL REGULAR COMPENSA2

TION.

3 The monthly equivalent of any additional compensa4

tion paid by reason of section 2002 of the Assistance for

5 Unemployed Workers and Struggling Families Act, as

6 contained in Public Law 111–5 (26 U.S.C. 3304 note; 123

7 Stat. 438) shall be disregarded after the date of the enact8

ment of this Act in considering the amount of income and

9 assets of an individual for purposes of determining such

10 individual’s eligibility for, or amount of, benefits under the

11 Supplemental Nutrition Assistance Program (SNAP).

12 SEC. 9. ADDITIONAL EXTENDED UNEMPLOYMENT BENE13

FITS UNDER THE RAILROAD UNEMPLOY14

MENT INSURANCE ACT.

15 (a) BENEFITS.—Section 2(c)(2)(D) of the Railroad

16 Unemployment Insurance Act, as added by section 2006

17 of the American Recovery and Reinvestment Act of 2009

18 (Public Law 111–5), is amended—

19 (1) in clause (iii)—

20 (A) by striking ‘‘June 30, 2009’’ and in21

serting ‘‘June 30, 2010’’; and

22 (B) by striking ‘‘December 31, 2009’’ and

23 inserting ‘‘December 31, 2010’’; and

24 (2) by adding at the end of clause (iv) the fol25

lowing: ‘‘In addition to the amount appropriated by

26 the preceding sentence, out of any funds in the

13

OTT09480 S.L.C.

1 Treasury not otherwise appropriated, there are ap2

propriated $175,000,000 to cover the cost of addi3

tional extended unemployment benefits provided

4 under this subparagraph, to remain available until

5 expended.’’.

6 (b) ADMINISTRATIVE EXPENSES.—Section 2006 of

7 division B of the American Recovery and Reinvestment

8 Act of 2009 (Public Law 111–5; 123 Stat. 445) is amend9

ed by adding at the end of subsection (b) the following:

10 ‘‘In addition to funds appropriated by the preceding sen11

tence, out of any funds in the Treasury not otherwise ap12

propriated, there are appropriated to the Railroad Retire13

ment Board $807,000 to cover the administrative ex14

penses associated with the payment of additional extended

15 unemployment benefits under section 2(c)(2)(D) of the

16 Railroad Unemployment Insurance Act, to remain avail17

able until expended.’’.

18 SEC. 10. 0.2 PERCENT FUTA SURTAX.

19 (a) IN GENERAL.—Section 3301 of the Internal Rev20

enue Code of 1986 (relating to rate of tax) is amended—

21 (1) by striking ‘‘through 2009’’ in paragraph

22 (1) and inserting ‘‘through 2010 and the first 6

23 months of calendar year 2011’’,

14

OTT09480 S.L.C.

1 (2) by striking ‘‘calendar year 2010’’ in para2

graph (2) and inserting ‘‘the remainder of calendar

3 year 2011’’, and

4 (3) by inserting ‘‘(or portion of the calendar

5 year)’’ after ‘‘during the calendar year’’.

6 (b) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to wages paid after December 31,

8 2009.

9 SEC. 11. EXTENSION AND MODIFICATION OF FIRST-TIME

10 HOMEBUYER TAX CREDIT.

11 (a) EXTENSION OF APPLICATION PERIOD.—

12 (1) IN GENERAL.—Subsection (h) of section 36

13 of the Internal Revenue Code of 1986 is amended—

14 (A) by striking ‘‘December 1, 2009’’ and

15 inserting ‘‘May 1, 2010’’,

16 (B) by striking ‘‘SECTION.—This section’’

17 and inserting ‘‘SECTION.—

18 ‘‘(1) IN GENERAL.—This section’’, and

19 (C) by adding at the end the following new

20 paragraph:

21 ‘‘(2) EXCEPTION IN CASE OF BINDING CON22

TRACT.—In the case of any taxpayer who enters into

23 a written binding contract before May 1, 2010, to

24 close on the purchase of a principal residence before

15

OTT09480 S.L.C.

1 July 1, 2010, paragraph (1) shall be applied by sub2

stituting ‘July 1, 2010’ for ‘May 1, 2010’.’’.

3 (2) WAIVER OF RECAPTURE.—

4 (A) IN GENERAL.—Subparagraph (D) of

5 section 36(f)(4) of such Code is amended by

6 striking ‘‘, and before December 1, 2009’’.

7 (B) CONFORMING AMENDMENT.—The

8 heading of such subparagraph (D) is amended

9 by inserting ‘‘AND 2010’’ after ‘‘2009’’.

10 (3) ELECTION TO TREAT PURCHASE IN PRIOR

11 YEAR.—Subsection (g) of section 36 of such Code is

12 amended to read as follows:

13 ‘‘(g) ELECTION TO TREAT PURCHASE IN PRIOR

14 YEAR.—In the case of a purchase of a principal residence

15 after December 31, 2008, a taxpayer may elect to treat

16 such purchase as made on December 31 of the calendar

17 year preceding such purchase for purposes of this section

18 (other than subsections (c), (f)(4)(D), and (h)).’’.

19 (b) SPECIAL RULE FOR LONG-TIME RESIDENTS OF

20 SAME PRINCIPAL RESIDENCE.—Subsection (c) of section

21 36 of the Internal Revenue Code of 1986 is amended by

22 adding at the end the following new paragraph:

23 ‘‘(6) EXCEPTION FOR LONG-TIME RESIDENTS

24 OF SAME PRINCIPAL RESIDENCE.—In the case of an

25 individual (and, if married, such individual’s spouse)

16

OTT09480 S.L.C.

1 who has owned and used the same residence as such

2 individual’s principal residence for any 5-consecu3

tive-year period during the 8-year period ending on

4 the date of the purchase of a subsequent principal

5 residence, such individual shall be treated as a first6

time homebuyer for purposes of this section with re7

spect to the purchase of such subsequent resi8

dence.’’.

9 (c) MODIFICATION OF DOLLAR AND INCOME LIMITA10

TIONS.—

11 (1) DOLLAR LIMITATION.—Subsection (b)(1) of

12 section 36 of the Internal Revenue Code of 1986 is

13 amended by adding at the end the following new

14 subparagraph:

15 ‘‘(D) SPECIAL RULE FOR LONG-TIME RESI16

DENTS OF SAME PRINCIPAL RESIDENCE.—In

17 the case of a taxpayer to whom a credit under

18 subsection (a) is allowed by reason of sub19

section (c)(6), subparagraphs (A), (B), and (C)

20 shall be applied by substituting ‘$6,500’ for

21 ‘$8,000’ and ‘$3,250’ for ‘$4,000’.’’.

22 (2) INCOME LIMITATION.—Subsection

23 (b)(2)(A)(i)(II) of section 36 of such Code is amend24

ed by striking ‘‘$75,000 ($150,000’’ and inserting

25 ‘‘$125,000 ($225,000’’.

17

OTT09480 S.L.C.

1 (d) LIMITATION ON PURCHASE PRICE OF RESI2

DENCE.—Subsection (b) of section 36 of the Internal Rev3

enue Code of 1986 is amended by adding at the end the

4 following new paragraph:

5 ‘‘(3) LIMITATION BASED ON PURCHASE

6 PRICE.—No credit shall be allowed under subsection

7 (a) for the purchase of any residence if the purchase

8 price of such residence exceeds $800,000.’’.

9 (e) WAIVER OF RECAPTURE OF FIRST-TIME HOME10

BUYER CREDIT FOR INDIVIDUALS ON QUALIFIED OFFI11

CIAL EXTENDED DUTY.—Paragraph (4) of section 36(f)

12 of the Internal Revenue Code of 1986 is amended by add13

ing at the end the following new subparagraph:

14 ‘‘(E) SPECIAL RULE FOR MEMBERS OF

15 THE ARMED FORCES, ETC.—

16 ‘‘(i) IN GENERAL.—In the case of the

17 disposition of a principal residence by an

18 individual (or a cessation referred to in

19 paragraph (2)) after December 31, 2008,

20 in connection with Government orders re21

ceived by such individual, or such individ22

ual’s spouse, for qualified official extended

23 duty service—

18

OTT09480 S.L.C.

1 ‘‘(I) paragraph (2) and sub2

section (d)(2) shall not apply to such

3 disposition (or cessation), and

4 ‘‘(II) if such residence was ac5

quired before January 1, 2009, para6

graph (1) shall not apply to the tax7

able year in which such disposition (or

8 cessation) occurs or any subsequent

9 taxable year.

10 ‘‘(ii) QUALIFIED OFFICIAL EXTENDED

11 DUTY SERVICE.—For purposes of this sec12

tion, the term ‘qualified official extended

13 duty service’ means service on qualified of14

ficial extended duty as—

15 ‘‘(I) a member of the uniformed

16 services,

17 ‘‘(II) a member of the Foreign

18 Service of the United States, or

19 ‘‘(III) an employee of the intel20

ligence community.

21 ‘‘(iii) DEFINITIONS.—Any term used

22 in this subparagraph which is also used in

23 paragraph (9) of section 121(d) shall have

24 the same meaning as when used in such

25 paragraph.’’.

19

OTT09480 S.L.C.

1 (f) EXTENSION OF FIRST-TIME HOMEBUYER CREDIT

2 FOR INDIVIDUALS ON QUALIFIED OFFICIAL EXTENDED

3 DUTY OUTSIDE THE UNITED STATES.—

4 (1) IN GENERAL.—Subsection (h) of section 36

5 of the Internal Revenue Code of 1986, as amended

6 by subsection (a), is amended by adding at the end

7 the following:

8 ‘‘(3) SPECIAL RULE FOR INDIVIDUALS ON

9 QUALIFIED OFFICIAL EXTENDED DUTY OUTSIDE

10 THE UNITED STATES.—In the case of any individual

11 who serves on qualified official extended duty service

12 (as defined in section 121(d)(9)(C)(i)) outside the

13 United States for at least 90 days during the period

14 beginning after December 31, 2008, and ending be15

fore May 1, 2010, and, if married, such individual’s

16 spouse—

17 ‘‘(A) paragraphs (1) and (2) shall each be

18 applied by substituting ‘May 1, 2011’ for ‘May

19 1, 2010’, and

20 ‘‘(B) paragraph (2) shall be applied by

21 substituting ‘July 1, 2011’ for ‘July 1, 2010’.’’.

22 (g) DEPENDENTS INELIGIBLE FOR CREDIT.—Sub23

section (d) of section 36 of the Internal Revenue Code of

24 1986 is amended by striking ‘‘or’’ at the end of paragraph

25 (1), by striking the period at the end of paragraph (2)

20

OTT09480 S.L.C.

1 and inserting ‘‘, or’’, and by adding at the end the fol2

lowing new paragraph:

3 ‘‘(3) a deduction under section 151 with respect

4 to such taxpayer is allowable to another taxpayer for

5 such taxable year.’’.

6 (h) IRS MATHEMATICAL ERROR AUTHORITY.—Para7

graph (2) of section 6213(g) of the Internal Revenue Code

8 of 1986 is amended—

9 (1) by striking ‘‘and’’ at the end of subpara10

graph (M),

11 (2) by striking the period at the end of sub12

paragraph (N) and inserting ‘‘, and’’, and

13 (3) by inserting after subparagraph (N) the fol14

lowing new subparagraph:

15 ‘‘(O) an omission of any increase required

16 under section 36(f) with respect to the recap17

ture of a credit allowed under section 36.’’.

18 (i) COORDINATION WITH FIRST-TIME HOMEBUYER

19 CREDIT FOR DISTRICT OF COLUMBIA.—Paragraph (4) of

20 section 1400C(e) of the Internal Revenue Code of 1986

21 is amended by striking ‘‘and before December 1, 2009,’’.

22 (j) EFFECTIVE DATES.—

23 (1) IN GENERAL.—The amendments made by

24 subsections (b), (c), (d), and (g) shall apply to resi21

OTT09480 S.L.C.

1 dences purchased after the date of the enactment of

2 this Act.

3 (2) EXTENSIONS.—The amendments made by

4 subsections (a), (f), and (i) shall apply to residences

5 purchased after November 30, 2009.

6 (3) WAIVER OF RECAPTURE.—The amendment

7 made by subsection (e) shall apply to dispositions

8 and cessations after December 31, 2008.

9 (4) MATHEMATICAL ERROR AUTHORITY.—The

10 amendments made by subsection (h) shall apply to

11 returns for taxable years ending on or after April 9,

12 2008.

13 SEC. 12. PROVISIONS TO ENHANCE THE ADMINISTRATION

14 OF THE FIRST-TIME HOMEBUYER TAX CRED15

IT.

16 (a) AGE LIMITATION.—

17 (1) IN GENERAL.—Subsection (b) of section 36

18 of the Internal Revenue Code of 1986, as amended

19 by this Act, is amended by adding at the end the fol20

lowing new paragraph:

21 ‘‘(4) AGE LIMITATION.—No credit shall be al22

lowed under subsection (a) with respect to the pur23

chase of any residence unless the taxpayer has at24

tained age 18 as of the date of such purchase. In

25 the case of any taxpayer who is married (within the

22

OTT09480 S.L.C.

1 meaning of section 7703), the taxpayer shall be

2 treated as meeting the age requirement of the pre3

ceding sentence if the taxpayer or the taxpayer’s

4 spouse meets such age requirement.’’.

5 (2) CONFORMING AMENDMENT.—Subsection (g)

6 of section 36 of such Code, as amended by this Act,

7 is amended by inserting ‘‘(b)(4),’’ before ‘‘(c)’’.

8 (b) DOCUMENTATION REQUIREMENT.—Subsection

9 (d) of section 36 of the Internal Revenue Code of 1986,

10 as amended by this Act, is amended by striking ‘‘or’’ at

11 the end of paragraph (2), by striking the period at the

12 end of paragraph (3) and inserting ‘‘, or’’, and by adding

13 at the end the following new paragraph:

14 ‘‘(4) the taxpayer fails to attach to the return

15 of tax for such taxable year a properly executed copy

16 of the settlement statement used to complete such

17 purchase.’’.

18 (c) RESTRICTION ON MARRIED INDIVIDUAL ACQUIR19

ING RESIDENCE FROM FAMILY OF SPOUSE.—Clause (i)

20 of section 36(c)(3)(A) of the Internal Revenue Code of

21 1986 is amended by inserting ‘‘(or, if married, such indi22

vidual’s spouse)’’ after ‘‘person acquiring such property’’.

23 (d) CERTAIN ERRORS WITH RESPECT TO THE

24 FIRST-TIME HOMEBUYER TAX CREDIT TREATED AS

25 MATHEMATICAL OR CLERICAL ERRORS.—Paragraph (2)

23

OTT09480 S.L.C.

1 of section 6213(g) the Internal Revenue Code of 1986,

2 as amended by this Act, is amended by striking ‘‘and’’

3 at the end of subparagraph (N), by striking the period

4 at the end of subparagraph (O) and inserting ‘‘, and’’,

5 and by inserting after subparagraph (O) the following new

6 subparagraph:

7 ‘‘(P) an entry on a return claiming the

8 credit under section 36 if—

9 ‘‘(i) the Secretary obtains information

10 from the person issuing the TIN of the

11 taxpayer that indicates that the taxpayer

12 does not meet the age requirement of sec13

tion 36(b)(4),

14 ‘‘(ii) information provided to the Sec15

retary by the taxpayer on an income tax

16 return for at least one of the 2 preceding

17 taxable years is inconsistent with eligibility

18 for such credit, or

19 ‘‘(iii) the taxpayer fails to attach to

20 the return the form described in section

21 36(d)(4).’’.

22 (e) EFFECTIVE DATE.—

23 (1) IN GENERAL.—Except as otherwise pro24

vided in this subsection, the amendments made by

24

OTT09480 S.L.C.

1 this section shall apply to purchases after the date

2 of the enactment of this Act.

3 (2) DOCUMENTATION REQUIREMENT.—The

4 amendments made by subsection (b) shall apply to

5 returns for taxable years ending after the date of the

6 enactment of this Act.

7 (3) TREATMENT AS MATHEMATICAL AND CLER8

ICAL ERRORS.—The amendments made by sub9

section (d) shall apply to returns for taxable years

10 ending on or after April 9, 2008.

Return to top

11 SEC. 13. 5-YEAR CARRYBACK OF OPERATING LOSSES.

12 (a) IN GENERAL.—Subparagraph (H) of section

13 172(b)(1) of the Internal Revenue Code of 1986 is amend14

ed to read as follows:

15 ‘‘(H) CARRYBACK FOR 2008 OR 2009 NET

16 OPERATING LOSSES.—

17 ‘‘(i) IN GENERAL.—In the case of an

18 applicable net operating loss with respect

19 to which the taxpayer has elected the ap20

plication of this subparagraph—

21 ‘‘(I) subparagraph (A)(i) shall be

22 applied by substituting any whole

23 number elected by the taxpayer which

24 is more than 2 and less than 6 for ‘2’,

25

OTT09480 S.L.C.

1 ‘‘(II) subparagraph (E)(ii) shall

2 be applied by substituting the whole

3 number which is one less than the

4 whole number substituted under sub5

clause (I) for ‘2’, and

6 ‘‘(III) subparagraph (F) shall not

7 apply.

8 ‘‘(ii) APPLICABLE NET OPERATING

9 LOSS.—For purposes of this subparagraph,

10 the term ‘applicable net operating loss’

11 means the taxpayer’s net operating loss for

12 a taxable year ending after December 31,

13 2007, and beginning before January 1,

14 2010.

15 ‘‘(iii) ELECTION.—

16 ‘‘(I) IN GENERAL.—Any election

17 under this subparagraph may be made

18 only with respect to 1 taxable year.

19 ‘‘(II) PROCEDURE.—Any election

20 under this subparagraph shall be

21 made in such manner as may be pre22

scribed by the Secretary, and shall be

23 made by the due date (including ex24

tension of time) for filing the return

25 for the taxpayer’s last taxable year be26

OTT09480 S.L.C.

1 ginning in 2009. Any such election,

2 once made, shall be irrevocable.

3 ‘‘(iv) LIMITATION ON AMOUNT OF

4 LOSS CARRYBACK TO 5TH PRECEDING TAX5

ABLE YEAR.—

6 ‘‘(I) IN GENERAL.—The amount

7 of any net operating loss which may

8 be carried back to the 5th taxable

9 year preceding the taxable year of

10 such loss under clause (i) shall not ex11

ceed 50 percent of the taxpayer’s tax12

able income (computed without regard

13 to the net operating loss for the loss

14 year or any taxable year thereafter)

15 for such preceding taxable year.

16 ‘‘(II) CARRYBACKS AND

17 CARRYOVERS TO OTHER TAXABLE

18 YEARS.—Appropriate adjustments in

19 the application of the second sentence

20 of paragraph (2) shall be made to

21 take into account the limitation of

22 subclause (I).

23 ‘‘(III) EXCEPTION FOR 2008

24 ELECTIONS BY SMALL BUSINESSES.—

25 Subclause (I) shall not apply to any

27

OTT09480 S.L.C.

1 loss of an eligible small business with

2 respect to any election made under

3 this subparagraph as in effect on the

4 day before the date of the enactment

5 of the Worker, Homeownership, and

6 Business Assistance Act of 2009.

7 ‘‘(v) SPECIAL RULES FOR SMALL

8 BUSINESS.—

9 ‘‘(I) IN GENERAL.—In the case

10 of an eligible small business which

11 made or makes an election under this

12 subparagraph as in effect on the day

13 before the date of the enactment of

14 the Worker, Homeownership, and

15 Business Assistance Act of 2009,

16 clause (iii)(I) shall be applied by sub17

stituting ‘2 taxable years’ for ‘1 tax18

able year’.

19 ‘‘(II) ELIGIBLE SMALL BUSI20

NESS.—For purposes of this subpara21

graph, the term ‘eligible small busi22

ness’ has the meaning given such

23 term by subparagraph (F)(iii), except

24 that in applying such subparagraph,

25 section 448(c) shall be applied by sub28

OTT09480 S.L.C.

1 stituting ‘$15,000,000’ for

2 ‘$5,000,000’ each place it appears.’’.

3 (b) ALTERNATIVE TAX NET OPERATING LOSS DE4

DUCTION.—Subclause (I) of section 56(d)(1)(A)(ii) of the

5 Internal Revenue Code of 1986 is amended to read as fol6

lows:

7 ‘‘(I) the amount of such deduc8

tion attributable to an applicable net

9 operating loss with respect to which

10 an election is made under section

11 172(b)(1)(H), or’’.

12 (c) LOSS FROM OPERATIONS OF LIFE INSURANCE

13 COMPANIES.—Subsection (b) of section 810 of the Inter14

nal Revenue Code of 1986 is amended by adding at the

15 end the following new paragraph:

16 ‘‘(4) CARRYBACK FOR 2008 OR 2009 LOSSES.—

17 ‘‘(A) IN GENERAL.—In the case of an ap18

plicable loss from operations with respect to

19 which the taxpayer has elected the application

20 of this paragraph, paragraph (1)(A) shall be

21 applied by substituting any whole number elect22

ed by the taxpayer which is more than 3 and

23 less than 6 for ‘3’.

24 ‘‘(B) APPLICABLE LOSS FROM OPER

25

ATIONS.—For purposes of this paragraph, the

29

OTT09480 S.L.C.

1 term ‘applicable loss from operations’ means

2 the taxpayer’s loss from operations for a tax3

able year ending after December 31, 2007, and

4 beginning before January 1, 2010.

5 ‘‘(C) ELECTION.—

6 ‘‘(i) IN GENERAL.—Any election

7 under this paragraph may be made only

8 with respect to 1 taxable year.

9 ‘‘(ii) PROCEDURE.—Any election

10 under this paragraph shall be made in

11 such manner as may be prescribed by the

12 Secretary, and shall be made by the due

13 date (including extension of time) for filing

14 the return for the taxpayer’s last taxable

15 year beginning in 2009. Any such election,

16 once made, shall be irrevocable.

17 ‘‘(D) LIMITATION ON AMOUNT OF LOSS

18 CARRYBACK TO 5TH PRECEDING TAXABLE

19 YEAR.—

20 ‘‘(i) IN GENERAL.—The amount of

21 any loss from operations which may be

22 carried back to the 5th taxable year pre23

ceding the taxable year of such loss under

24 subparagraph (A) shall not exceed 50 per

25 cent of the taxpayer’s taxable income

30

OTT09480 S.L.C.

1 (computed without regard to the loss from

2 operations for the loss year or any taxable

3 year thereafter) for such preceding taxable

4 year.

5 ‘‘(ii) CARRYBACKS AND CARRYOVERS

6 TO OTHER TAXABLE YEARS.—Appropriate

7 adjustments in the application of the sec8

ond sentence of paragraph (2) shall be

9 made to take into account the limitation of

10 clause (i).’’.

11 (d) ANTI-ABUSE RULES.—The Secretary of Treasury

12 or the Secretary’s designee shall prescribe such rules as

13 are necessary to prevent the abuse of the purposes of the

14 amendments made by this section, including anti-stuffing

15 rules, anti-churning rules (including rules relating to sale16

leasebacks), and rules similar to the rules under section

17 1091 of the Internal Revenue Code of 1986 relating to

18 losses from wash sales.

19 (e) EFFECTIVE DATES.—

20 (1) IN GENERAL.—Except as otherwise pro21

vided in this subsection, the amendments made by

22 this section shall apply to net operating losses aris23

ing in taxable years ending after December 31,

24 2007.

31

OTT09480 S.L.C.

1 (2) ALTERNATIVE TAX NET OPERATING LOSS

2 DEDUCTION.—The amendment made by subsection

3 (b) shall apply to taxable years ending after Decem4

ber 31, 2002.

5 (3) LOSS FROM OPERATIONS OF LIFE INSUR6

ANCE COMPANIES.—The amendment made by sub7

section (d) shall apply to losses from operations aris8

ing in taxable years ending after December 31,

9 2007.

10 (4) TRANSITIONAL RULE.—In the case of any

11 net operating loss (or, in the case of a life insurance

12 company, any loss from operations) for a taxable

13 year ending before the date of the enactment of this

14 Act—

15 (A) any election made under section

16 172(b)(3) or 810(b)(3) of the Internal Revenue

17 Code of 1986 with respect to such loss may

18 (notwithstanding such section) be revoked be19

fore the due date (including extension of time)

20 for filing the return for the taxpayer’s last tax21

able year beginning in 2009, and

22 (B) any application under section 6411(a)

23 of such Code with respect to such loss shall be

24 treated as timely filed if filed before such due

25 date.

32

OTT09480 S.L.C.

1 (f) EXCEPTION FOR TARP RECIPIENTS.—The

2 amendments made by this section shall not apply to—

3 (1) any taxpayer if—

4 (A) the Federal Government acquired be5

fore the date of the enactment of this Act an

6 equity interest in the taxpayer pursuant to the

7 Emergency Economic Stabilization Act of 2008,

8 (B) the Federal Government acquired be9

fore such date of enactment any warrant (or

10 other right) to acquire any equity interest with

11 respect to the taxpayer pursuant to the Emer12

gency Economic Stabilization Act of 2008, or

13 (C) such taxpayer receives after such date

14 of enactment funds from the Federal Govern15

ment in exchange for an interest described in

16 subparagraph (A) or (B) pursuant to a pro17

gram established under title I of division A of

18 the Emergency Economic Stabilization Act of

19 2008 (unless such taxpayer is a financial insti20

tution (as defined in section 3 of such Act) and

21 the funds are received pursuant to a program

22 established by the Secretary of the Treasury for

23 the stated purpose of increasing the availability

24 of credit to small businesses using funding

25 made available under such Act), or

33

Tax Impact

of

Job Loss

Publication 4128 (Rev. 8-2009)

Catalog Number 35359Q

Facts

JOB LOSS CREATES TAX ISSUES

The Internal Revenue Service recognizes that the loss of a job may create new tax issues. The

IRS provides the following information to assist displaced workers.

n Severance pay and unemployment compensation are taxable. Payments for any

accumulated vacation or sick time are also taxable. You should ensure that enough taxes

are withheld from these payments or make estimated payments. See IRS Publication 17,

Your Federal Income Tax, for more information.

n Generally, withdrawals from your pension plan are taxable unless they are transferred to a

qualified plan (such as an IRA). If you are under age 59 1⁄2, an additional tax may apply

to the taxable portion of your pension. See IRS Publication 575, Pension and Annuity

Income, for more information.

n Certain expenses incurred while looking for a new job may be deductible. Examples

of deductible expenses include employment and outplacement agency fees, resume

preparation, and travel expenses for job search and interviews. See IRS Publication 17,

Your Federal Income Tax, for more information.

n Moving costs you incur because of a change in your job location may be deductible. You

must meet certain criteria relating to distance moved and timing of the move. See IRS

Publication 521, Moving Expenses, for more information.

n Some displaced workers may decide to start their own business. The IRS provides

information and classes for new business owners. Please visit www.irs.gov or see IRS

Publication 334, Tax Guide for Small Businesses, for more information.

Copies of all publications are available at www.irs.gov. You may also request a copy by calling

1-800-829-3676.

Q&A

JOB LOSS: What Income is Taxable?

The following Questions and Answers are provided by the Internal Revenue Service to clarify the tax

implications of financial issues faced by workers who have lost their jobs. References are provided for

additional information.

Is Severance Pay taxable?

Yes, severance pay is taxable in the year that you receive it. Your employer will include this amount on

your Form W-2 and will withhold appropriate federal and state taxes. See Publication 525 for additional

information.

What about Accumulated Leave or Vacation Pay and Sick Pay?

Yes, annual, or vacation pay, and sick pay are calculated as wages by your employer and will be included

in your Form W-2.

Is Unemployment Compensation taxable?

Yes, your state unemployment insurance benefits (up to 26 weeks) and your extended benefits (up to an

additional 13 weeks) are taxable. You may choose to have 10% withheld for federal taxes by completing

Form W-4V. The State will provide you with a Form 1099-G prior to January 31st of each year, showing

the amount of taxable benefits paid in the prior year. See Publication 525 for additional information.

Temporary Suspension of Tax on Portion of Unemployment Benefits

For tax year 2009, each taxpayer can exclude from gross income up to $2,400 of unemployment

compensation. Unemployment compensation over $2,400 is subject to federal income tax.

Individuals who receive unemployment benefits in 2009 should check their withholding to ensure

they are not having unnecessary tax withheld.

Is there a COBRA Health Insurance Continuation Premium Subsidy?

Workers who have lost their jobs may qualify for a 65 percent subsidy for Consolidated Omnibus Budget

Reconciliation Act (COBRA) continuation premiums for themselves and their families for up to nine

months. Eligible workers will have to pay 35 percent of the premium to their former employers.

To qualify, a worker must have been involuntarily separated between September 1, 2008, and December

31, 2009.

More information on the COBRA subsidy is available from the U.S. Department of Labor.

What about Gifts of Cash and Property from Family or Friends?

Generally, the person who receives the gift is not liable for any taxes on the gift. If the gift produces

income like interest, dividends or rent payments, the receiver would be responsible for taxes on that

produced income. Each year there is a specific maximum amount that may be given that will not create

a taxable event to either the giver or the receiver. Gifts in excess of this maximum may be subject to gift

taxes by the gift giver. See Publications 17 or 950 for additional information.

If I am eligible for Public Assistance or Food Stamps, is it taxable? No.

When will I get my final Form W-2 from my employer?

Your employer must provide your Form W-2 by January 31st after the close of the calendar year. As an

example, 2008 Forms W-2 are due to employees by January 31, 2009.

What if my employer filed bankruptcy or went out of business, how do I get my Form W-2?

In either case the employer must file and report your wages and withholding on a Form W-2 at year’s

end. If you do not receive your Form W-2, try to contact your employer or their representative. If you are

unsuccessful, the IRS can assist you in filing a substitute Form W-2 using your records. A good precaution

is to keep year-to-date records or pay stubs until you receive your Form W-2.

Can I file an early tax return and receive any refund due?

No. Individual income tax returns are based on a calendar year and cannot be filed and processed earlier

than January 1st of the next calendar year.

Q&A

JOB LOSS: What Income is Taxable? (continued)

If I sell other assets like stocks, bonds, and investment property, are they immediately taxable?

Not necessarily, however the sale of such assets should be reported. If you have a gain on the sale, it may

generate an income tax liability. You should review your overall tax situation and make sure you have paid

your taxes as required to avoid any estimated tax penalty. Information on estimated tax is in Publication

505.

What can I do if I owe taxes and cannot pay them?

Contact the Internal Revenue Service as soon as possible to request a payment plan. Communication is

the key to minimizing problems.

Is special assistance available on unresolved tax matters that create hardships?

Yes, if you are experiencing economic harm, a systemic problem or are seeking help in resolving tax

problems that have not been resolved through normal channels, you may be eligible for Taxpayer

Advocate Services (TAS) assistance. You can reach TAS by calling toll-free 1-877-777-4778 or TTY/TTD

1-800-829-4059.

Copies of the referenced publications can be found at www.irs.gov, or you may call 1-800-829-3676.

Q&A

JOB LOSS: Pensions/IRAs – What’s Next?

The following Questions and Answers are provided by the Internal Revenue Service to help you handle

financial issues with a tax impact which may arise if you lose your job.

What if I withdraw money from my qualified retirement plan or IRA?

Generally speaking, if you withdraw the funds before you reach eligible age, and do not roll it over into

another qualified retirement plan or Individual Retirement Account (IRA) within 60 days, that amount will

be taxable income in the year in which it is withdrawn. You may also have to pay an additional 10% tax

on those early distributions. There are special rules for computing tax on lump-sum distributions. See IRS

Publication 17 or Publication 575 for detailed information.

Can I move money from my qualified retirement plan into another qualified retirement plan or IRA?

Yes, this is called a “rollover” and the amount will not be taxed if you redeposit the amount withdrawn

into another qualified retirement plan or traditional IRA within 60 days. See Publication 575 for additional

information.

Are there any “hardship” exceptions to the early distribution penalties?

Yes. If you are totally and permanently disabled or if you withdraw the money to pay medical expenses

(these expenses must be more than 7.5% of your adjusted gross income) or to pay an alternate payee

under a qualified domestic relations order. Other specific exceptions are detailed in Publication 575.

If I made an IRA contribution during the current tax year, can I withdraw it before the close of the

year?

Yes. Contributions returned before the due date of the return can be withdrawn without penalty. You must

take not only the contribution but any interest or dividend it may have earned. This is a tax-free event

if (1) you do not take a deduction for the contribution and (2) you withdraw any income or interest the

investment made while in the IRA and include that amount in your income. See Publication 590, Individual

Retirement Arrangements for more information.

I’ve had my IRAs for several years, in some of those years I didn’t benefit from any deduction due

to my income. How do I figure what part of the distribution is taxable?

If you had non-deductible IRA contributions, you would have completed Form 8606 to establish your

basis (cost) in your combined IRAs. Use the worksheet in Publication 590 to calculate what part of the

distribution is taxable and complete Part I on Form 8606 and attach it to your return.

If I take my pension and want to transfer it to an IRA, are there any special rules or restrictions?

Rolling over your pension distribution to a financial institution: (i.e., bank, credit union, brokerage house,

etc.) is straightforward. There are some prohibited transactions including borrowing the distribution even

with a signed contract with interest due, receiving unreasonable compensation for managing these funds,

buying property for personal use (present or future), or using the distribution as security for a loan. Review

the information in Publications 575 and 590 for additional information.

In addition to the Publications 17, 575 and 590, take advantage of every resource including your financial

and/or tax advisor before deciding how to proceed in transitioning your retirement funds. Copies of the

referenced publications can be found at www.irs.gov or you may call 1-800-829-3676.

Q&A

JOB LOSS: Starting Your Own Business

Every new phase of life brings many challenges. The Internal Revenue Service recognizes that the loss

of a job can create new tax situations for you. The following information is provided to clarify possible tax

implications.

Can I be an Employee and a Business Owner in the same tax year?

Yes. Under the tax law, you can be both an Employee and a Business Owner at the same time if you

choose. The primary issue is to report all income on your return.

Where can I get information about starting my own business?

Publication 334, Tax Guide for Small Business and Publication 3207, The Small Business Resource

Guide CD ROM provides tax related information. These publications contain information on starting your

own business, record keeping, and deductible expenses. In addition, Publication 3207 contains all of the

business tax forms, instructions and publications needed by small business owners.

What options do I have for organizing my business?

Under the federal tax code, there are three options: Sole Proprietorship, Partnership or Corporation. A

number of factors may influence your decision about which structure is best for you including cost of startup,

exposure to risk or liability, financing and the tax implications.

What record keeping requirements do I have as a Sole Proprietor?

Generally, you should keep detailed records of your income and expenses for your business to prepare

not only required tax returns but also financial statements to help in maintaining and growing your

business. The same general rules apply for Partnerships and Corporations with some additional detail.

How do I report my business income?

As a Sole Proprietor, you will need to file a Form 1040, Schedule C or C-EZ and Schedule SE. For more

information, please see Publication 334, Tax Guide for Small Business.

What kinds of taxes do I pay as a Sole Proprietor?

Taxes due on net self-employment income (total business income minus expenses) include income

tax and self-employment (Social Security and Medicare) taxes. Additional information is available in

Publication 334, Tax Guide for Small Businesses. You may be responsible for Employment Taxes if you

have employees working in your business, see Publication 15, Circular E, Employer’s Tax Guide for

details.

How do I pay my taxes as a Sole Proprietor?

Generally, you would pay using the 1040ES Estimated Tax process on a quarterly basis. Federal income

taxes including Self-Employment tax use a pay-as-you-go system. You generally must make estimated tax

payments if you expect to owe taxes of $1,000 or more when you file your return. For more information on

Estimated Tax see Publication 505. Employment taxes are paid using Forms 941, Employer’s Quarterly

Federal Tax Return, and Form 940, Employer’s Annual Federal Unemployment Tax Return. The filing

requirements for each of these forms and instructions about how to pay taxes due are included in the

Publication 15, Circular E, Employer’s Tax Guide.

Can I claim the Earned Income Credit on my net self-employment?

Net income from a Sole Proprietorship is earned income. The Earned Income Credit is available to

taxpayers that meet certain income guidelines. See Publication 596, Earned Income Credit.

Are classes or seminars available to get additional information?

Yes. The Small Business/Self-Employed Division of the Internal Revenue Service has a number of Small

Business seminars through out the nation. You can also order Publication 1066C, A Virtual Small Business

Workshop DVD on the Small Business Web Site at www.irs.gov. Other products are available to order at

the Small Business Web Site as well.

Q&A

JOB LOSS: Miscellaneous Tax Information

Every new phase of life brings many challenges. The Internal Revenue Service recognizes that the loss

of a job can create new tax situations for you. The following information is provided to clarify the tax

implications.

Can I deduct any of the expenses that I have from looking for a new job?

Yes, you can deduct certain expenses for looking for a new job in your present occupation, even if you do

not get a new job. For additional information, see Publication 529, Miscellaneous Deductions.

What types of expenses can I include?

Generally, you can deduct employment and outplacement agency fees and amounts for typing, printing,

and mailing copies of your resume to prospective employers for work in your current occupation. More

specific information is available in Publication 529, Miscellaneous Deductions.

What about travel costs for interviews or job hunting?

If you travel to an area to look for work in your current occupation or attend an interview you can generally

deduct the ordinary and necessary travel costs. The purpose of the trip must be considered. Trips that are

primarily personal are not deductible. For more information on how to compute your travel expenses, see

Publication 463, Travel, Entertainment, Gifts and Car Expense.

Do I need to file the “long-form” to deduct my job hunting costs?

Yes, you will need to file a Form 1040 and Schedule A. Job hunting costs are a miscellaneous itemized

deduction, subject to a 2% Adjusted Gross Income limitation. For more information, please see

Publication 17, Your Federal Income Tax.

Can I deduct the moving costs I paid to move to my new job?

Certain moving costs are deductible if you meet the time and distance requirements. Generally, your

move has to be closely related in time to the start of your new job and you must have moved at least

50 miles. Deductible moving costs are calculated on Form 3903. Publication 521, Moving Expenses,

provides additional information.

If I sell my home, do I have to pay taxes on the money I make?

Usually you do not have to pay tax on the first $250,000 ($500,000 on a joint return in most cases) of gain

from the sale of your main home. Generally, you must have lived in and owned the home for at least two

years of the five years prior to the sale and not excluded a gain on another home in the past two years.

For more information, see Publication 523, Selling Your Home.

Now I have to pay the full cost for my health insurance. Is this deductible?

Health insurance premiums are includible in your medical and dental bills. They are deductible on

Schedule A, if you itemize. Some limitations apply. See Publication 502, Medical and Dental Expenses, for

more information.

Can I deduct contributions I made to a Health Savings Account (HSA)?

If you are an eligible individual, you can claim a tax deduction for contributions you, or someone other

than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. For

more information see Pub 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Can I claim the Earned Income Credit this year?

Even though your income may have exceeded the thresholds for this credit in past years, you may be

eligible for the credit this year. The credit is available to taxpayers who meet certain income guidelines.

For more information, see Publication 596, Earned Income Credit.

My chances of finding a new job will be better if I take a few college courses. Can I deduct any of

my tuition?

You may qualify for the Hope or Lifetime Learning educational credits. Sometimes, the tuition costs

can even be an itemized deduction. For more information, see Publication 970, Tax Benefits for Higher

Education.

Copies of the referenced publications can be found at www.irs.gov or you may call 1-800-829-3676.

 

OTT09480 S.L.C.

1 (2) the Federal National Mortgage Association

2 and the Federal Home Loan Mortgage Corporation,

3 and

4 (3) any taxpayer which at any time in 2008 or

5 2009 was or is a member of the same affiliated

6 group (as defined in section 1504 of the Internal

7 Revenue Code of 1986, determined without regard

8 to subsection (b) thereof) as a taxpayer described in

9 paragraph (1) or (2).

10 SEC. 14. EXCLUSION FROM GROSS INCOME OF QUALIFIED

11 MILITARY BASE REALIGNMENT AND CLO12

SURE FRINGE.

13 (a) IN GENERAL.—Subsection (n) of section 132 of

14 the Internal Revenue Code of 1986 is amended—

15 (1) in subparagraph (1) by striking ‘‘this sub16

section) to offset the adverse effects on housing val17

ues as a result of a military base realignment or clo18

sure’’ and inserting ‘‘the American Recovery and

19 Reinvestment Tax Act of 2009)’’, and

20 (2) in subparagraph (2) by striking ‘‘clause (1)

21 of’’.

22 (b) EFFECTIVE DATE.—The amendments made by

23 this act shall apply to payments made after February 17,

24 2009.

34

OTT09480 S.L.C.

1 SEC. 15. DELAY IN APPLICATION OF WORLDWIDE ALLOCA2

TION OF INTEREST.

3 (a) IN GENERAL.—Paragraphs (5)(D) and (6) of sec4

tion 864(f) of the Internal Revenue Code of 1986 are each

5 amended by striking ‘‘December 31, 2010’’ and inserting

6 ‘‘December 31, 2017’’.

7 (b) CONFORMING AMENDMENT.—Section 864(f) of

8 the Internal Revenue Code of 1986 is amended by striking

9 paragraph (7).

10 (c) EFFECTIVE DATES.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 2010.

13 SEC. 16. INCREASE IN PENALTY FOR FAILURE TO FILE A

14 PARTNERSHIP OR S CORPORATION RETURN.

15 (a) IN GENERAL.—Sections 6698(b)(1) and

16 6699(b)(1) of the Internal Revenue Code of 1986 are each

17 amended by striking ‘‘$89’’ and inserting ‘‘$195’’.

18 (b) EFFECTIVE DATE.—The amendments made by

19 this section shall apply to returns for taxable years begin20

ning after December 31, 2009.

21 SEC. 17. CERTAIN TAX RETURN PREPARERS REQUIRED TO

22 FILE RETURNS ELECTRONICALLY.

23 (a) IN GENERAL.—Subsection (e) of section 6011 of

24 the Internal Revenue Code of 1986 is amended by adding

25 at the end the following new paragraph:

35

OTT09480 S.L.C.

1 ‘‘(3) SPECIAL RULE FOR TAX RETURN PRE2

PARERS.—

3 ‘‘(A) IN GENERAL.—The Secretary shall

4 require than any individual income tax return

5 prepared by a tax return preparer be filed on

6 magnetic media if—

7 ‘‘(i) such return is filed by such tax

8 return preparer, and

9 ‘‘(ii) such tax return preparer is a

10 specified tax return preparer for the cal11

endar year during which such return is

12 filed.

13 ‘‘(B) SPECIFIED TAX RETURN PRE14

PARER.—For purposes of this paragraph, the

15 term ‘specified tax return preparer’ means, with

16 respect to any calendar year, any tax return

17 preparer unless such preparer reasonably ex18

pects to file 10 or fewer individual income tax

19 returns during such calendar year.

20 ‘‘(C) INDIVIDUAL INCOME TAX RETURN.—

21 For purposes of this paragraph, the term ‘indi22

vidual income tax return’ means any return of

23 the tax imposed by subtitle A on individuals, es24

tates, or trusts.’’.

36

OTT09480 S.L.C.

1 (b) CONFORMING AMENDMENT.—Paragraph (1) of

2 section 6011(e) of the Internal Revenue Code of 1986 is

3 amended by striking ‘‘The Secretary may not’’ and insert4

ing ‘‘Except as provided in paragraph (3), the Secretary

5 may not’’.

6 (c) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to returns filed after December 31,

8 2010.

9 SEC. 18. TIME FOR PAYMENT OF CORPORATE ESTIMATED

10 TAXES.

11 The percentage under paragraph (1) of section

12 202(b) of the Corporate Estimated Tax Shift Act of 2009

13 in effect on the date of the enactment of this Act is in14

creased by 33.0 percentage points.

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Nurse Outduels IRS Over M.B.A. Tuition

by Laura Saunders
Monday, January 11, 2010

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How One Woman Went to Tax Court and Won Deduction

A Maryland nurse accomplished two rare feats in her battle with the Internal Revenue Service: She defended herself against the agency's lawyers and won, and she got a ruling that could help tens of thousands of students deduct the cost of an M.B.A. degree on their taxes.

The U.S. Tax Court handed Lori Singleton-Clarke her victory last month, saying the 47-year-old Bryantown, Md., woman had properly deducted nearly $15,000 in business school tuition. The Tax Court ruling should make it easier for many other professionals to deduct the expense of a Master in Business Administration degree.

After getting word of the court decision, "I nearly yelled the roof off the house," Ms. Singleton-Clarke says. "I still can hardly believe it."

The IRS's rules on deducting work-related tuition are complicated and onerous, ultimately preventing most students from deducting their tuition. But this case clarifies the rules and will likely lead to more taxpayers taking the deduction, tax experts say.

Few taxpayers decide to go toe to toe with the IRS as Ms. Singleton-Clarke did, arguing her case without a lawyer. For good reason: In 2009, individuals won only about 10% of about 300 such cases, according to data from Tax Analysts. Ms. Singleton-Clarke fought her case in Tax Court, a venue where taxpayers don't have to pay the contested tax before going to trial. The court has a special procedure for small cases.

Some of the losers, such as several dozen tax protesters who defended the filing of frivolous returns, were tilting at tax windmills. Others were simply on the wrong side of the law, including a horse enthusiast who wanted to deduct his hobby losses, an unsuccessful comedian who tried to classify his expenses as business losses, and an attorney who claimed over $100,000 in medical deductions for his visits to prostitutes.

Of the few who did prevail against the IRS, nearly half came to court on a single issue: requests for "innocent spouse" treatment that decouples a spouse from a partner who is a tax cheat. This provision has been used mostly to protect unknowing wives against their husbands' tax misdeeds. One of the spouses granted relief last year was formerly married to an investment banker who didn't pay his taxes after his bonus didn't come though.

Ms. Singleton-Clarke's encounter with the tax system shows what it can take for one individual to prevail over the IRS against the long odds: favorable facts, obsessive organization, and fearlessness. She says she didn't have a lawyer because she couldn't afford one.

Her odyssey began in 2006, when she filed her 2005 return. It showed just over $50,000 of income, several smaller deductions, and one large one—for $14,787 of expenses for an M.B.A. from the University of Phoenix, an online school. Ms. Singleton-Clarke deducted the tuition because her tax preparer told her she met the law's narrow definitions.

When the IRS audited the return in late 2006, she conceded all the IRS's challenges to her deductions but one. She dug in her heels on the tuition deduction because, after looking at a complex diagram in IRS Publication 970, she believed she qualified for it.

The audit process first involved several rounds of confusing IRS correspondence. "At one point I had three requests for the same records, each with a different contact name. I had to spend hours calling to figure out who needed what," says Ms. Singleton-Clarke, a steely but soft-spoken woman.

After that she was summoned to an IRS office in downtown Washington where she had to provide more copies of her résumé, a job description, and other records. She felt overwhelmed and intimidated.

Both the IRS's actions and her reactions are typical, says Christopher Bergin, president of Tax Analysts, a group that fights for tax-system transparency and since l972 has won a series of freedom-of-information cases against the IRS. "Without doing anything illegal, they muscled her. That's what they do. The pressure can be terrifying," he says.

A spokesman for the IRS says that it never comments on issues with specific taxpayers.

As Ms. Singleton-Clarke held fast to her conviction that she deserved the deduction, she drew on skills she developed as a nurse responsible for dealing with doctors who may have infringed hospital rules. That was why she studied for her M.B.A., she says: "I didn't want to feel outmatched by surgeons who didn't want to talk to me."

When the IRS again denied her deduction by mail after her meeting with the agent, Ms. Singleton-Clarke wound up going to Tax Court to set a trial date. But when she came to court in November 2008, it seemed that everyone else had settled their cases: "There was just me by myself at one table and the [IRS] tax team of at another in a big courtroom."

The tax team consisted of a two attorneys and several assistants or paralegals. Ms. Singleton-Clarke had been told to bring copies of her documents in triplicate, including a time line of her career. Judge Stanley Goldberg questioned her closely and complimented her on her record-keeping during the hour-long trial. "The whole time," she says: "I was thinking, here is this god-like man who is going to make an important decision for me. But he wasn't a bully. I had met with the bullies before."

Reached Friday by phone, Judge Goldberg said: "I remember the case well because Ms. Singleton-Clarke was so articulate and well-prepared. Too many taxpayers are not."

Ms. Singleton-Clarke's victory came when the ruling was issued a year later. It is unusual in that it helps not only her but others as well. Decisions in small cases aren't allowed to be cited as precedent. "But everyone uses them," says Melissa Labant, a tax expert with the American Institute of CPAs. "This case definitely provides a road map others can use, especially M.B.A. students."

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IRS to start regulating paid tax preparers
U.S. to make them pass tests, adhere to ethical standards
The Associated Press
updated 2:41 p.m. PT, Mon., Jan. 4, 2010

WASHINGTON - The IRS plans to require tax preparers to pass a test and register with the government to better police a largely unregulated industry used by most taxpayers.

The Internal Revenue Service says there could be more than a million people offering tax preparation services. Most offer sound advice, IRS Commissioner Doug Shulman says, but many don't and the agency knows little about them.

The new regulations, announced Monday, won't be in effect for the current filing season — individual tax returns are due April 15. But Shulman said tax preparers will be held to higher standards in future years as the IRS steps up its oversight to help reduce fraud and errors.

"Taxpayers will get improved service and enhanced standards from tax preparers, and they'll have less risk that they'll get bad advice," Shulman told reporters. "The tax preparation industry will get more consistency and a level playing field."

Shulman said he hopes to have all paid tax preparers registered by the 2011 filing season. Preparers will be given about three years to meet competency requirements, though there is much work to be done to develop standards and tests.

Eventually, tax preparers will be required to complete annual training and will be subject to penalties for unethical conduct, Shulman said. Taxpayers will be able to check the credentials of preparers on a public IRS database.

"We think this is incredibly important to the entire tax system that when people pay good money for a tax return preparer, they don't get bad advice," Shulman said.

Though the new regulations aren't in place yet, Shulman said the IRS is stepping up enforcement this tax season. He said the IRS will send notices to 10,000 preparers who have had frequent errors.

He said agents will also visit thousands of tax preparers. Some of the visits will be announced ahead of time; others will not. In some visits, agents will pose as taxpayers to see if they get accurate advice, Shulman said.

Shulman said taxpayers should avoid preparers who promise larger refunds, or those who charge fees based on the size of the refund.

H&R Block issued a statement supporting the new regulations. The tax giant said its training requirements already exceed those the IRS will require.

Rep. Jose E. Serrano, D-N.Y., chairman of the House appropriations subcommittee that oversees the IRS, said the rules would help stop "scam artists" who prey on low-income taxpayers.

More than 80 percent of taxpayers use a paid tax preparer or tax software to complete their yearly returns. However, paid tax preparers are unregulated in many states, unless they are also lawyers, certified public accountants or enrolled agents who represent taxpayers before the Internal Revenue Service.

Lawyers, certified public accountants and enrolled agents will not be affected by the new regulations. Some had said they were concerned that new IRS regulations would be redundant for them because they already are regulated through their professions. Shulman agreed and exempted them.

The IRS does a poor job overseeing paid tax preparers, making it difficult to detect those responsible for large numbers of errors or even fraud, said an inspector general's report issued in July.

Tax advisers are supposed to sign the returns they prepare, but they can use one of several numbers to identify themselves on returns, making it impossible to accurately track them, said the report by the treasury inspector general for tax administration.

Shulman said new registration requirements should help the IRS identify problem preparers. He estimated there are between 900,000 and 1.4 million people who are paid to prepare tax returns. He said the agency will have a better handle on the number once they have to register.

The IRS has the authority to issue the new regulations without legislation, he said.

Many professional organizations and tax preparation companies have said they would support increased oversight.

"I believe it will improve services to the general public," said Cindy Hockenberry, research coordinator for the National Association of Tax Professionals. "The comfort level will go up a little bit because the taxpayer will know that somebody is looking over this industry."

"In the past when just anybody could put out their shingle and do a return, that was just kind of a hotbed for unscrupulous behavior," Hockenberry said.

 

 

 

 


 

 

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