Tax News

CCH (cch.taxgroup.com) reports:

The IRS has kicked off the 2008 tax filing season by issuing guidance that announces and recaps a number of programs and tax law changes that affect the filing of 2007 tax returns.
IRS Fact Sheet FS-2008-1 recaps and highlights tax changes for the 2007 tax filing season. These highlights include the raising of the alternative minimum tax (AMT) exemption for 2007 (TAXDAY, 2007/12/27, W.1) and the extension of the tuition and fees, the educator expense and the state and local sales taxes deductions. In addition, an itemized deduction for premiums paid or accrued on qualified mortgage insurance obtained in connection with acquisition indebtedness on a qualified residence is available for taxpayers with incomes not exceeding designated amounts under Code Sec. 163(h)(3)(E)(iv), and the limits on contributions to IRAs and other retirement plans have risen.
Inflation adjustments have increased the amounts of the personal and dependency exemptions, standard deduction and the maximum earned income credit (Rev. Proc. 2007-66, I.R.B. 2007-45, 970) (TAXDAY, 2007/10/19, I.2). The standard mileage rates for business use of a vehicle and for use of a vehicle for medical reasons or as part of a deductible move have increased. The rate for use of a vehicle to provide services to charitable organizations has not changed (Rev. Proc. 2007-70, I.R.B. 2007-50, 1162)(TAXDAY, 2007/11/28, I.1).
New for 2007, employees working for employers who failed to withhold Social Security and Medicare taxes can use new Form 8919 to report and pay their share of those taxes (IR-2007-203, TAXDAY, 2007/12/21, I.2).
Electronic Filing and Related Issues
In IRS Fact Sheet FS-2008-4, the IRS urged taxpayers to e-file in 2008, pointing out that over 80 million taxpayers chose e-file options in 2007; 9 percent more than in 2006. The IRS is expecting a record number of taxpayers to e-file in 2008. Among the advantages of electronic filing are faster refunds, easy payment options, more accurate returns and fast confirmation of receipt by the IRS. For the 2008 filing season, 95 million individual taxpayers will be eligible for IRS Free File. For the 2008 filing season, taxpayers and tax practitioners will be able to select a Self-Select PIN or a practitioner PIN for signing their e-filed returns. Finally, direct deposit of refunds is available to both e-filers and those filing traditional paper tax returns.
IRS Fact Sheet FS-2008-3 explains in more detail the new simplified signature process for e-filed individual income tax returns submitted by tax practitioners. The process eliminates the requirement that the practitioner send a paper signature document to the IRS in addition to the e-filed return. Similarly to returns submitted by individuals, those prepared and submitted by practitioners must now be electronically signed using a Personal Identification Number (PIN). Practitioners may use either a Self-Select PIN, which allows taxpayers to sign a return by selecting a five-digit PIN, or a Practitioner PIN, which is used when a taxpayer authorizes an Electronic Return Originator (ERO) to input an electronic signature on the taxpayer's behalf on an electronically filed return. The Practitioner PIN method requires the practitioner to complete Form 8879, IRS e-file Signature Authorization. Form 8453, U.S. Individual Income Tax Declaration, which was formerly used to submit a paper signature for e-file returns, has been redesigned to be used to transmit supporting paper documents required to be submitted with e-filed returns.
Individuals who e-file their own returns will continue to use Form 8453-OL or the Self-Select PIN method.
IRS Fact Sheet FS-2008-6 discusses the various electronic payment options for the 2008 filing season. Taxpayers can pay 2007 income taxes electronically through e-pay options such as electronic funds withdrawal from a checking or savings account or by paying with a credit card. They can also use these methods to pay projected tax when requesting an automatic extension of time to file and to pay quarterly estimated taxes for tax year 2008. In addition, taxpayers can make a credit card payment for past due tax from 1997 and after.
Businesses can use electronic funds withdrawal to pay taxes on employment, corporate and fiduciary tax returns and to pay projected tax due when requesting a filing extension. Businesses can also make a credit card payment for taxes owed on employment tax returns and for past due taxes from 1997 and after.
The electronic funds withdrawal option is free, but available only to those who e-file. Taxpayers can make credit card payments whether they file an electronic or paper return. Credit card payments may be made through tax software when filing electronically, over the phone or online, While the IRS does not impose any fee for credit card payments, the private sector companies authorized by the IRS to process these payments do impose fees.
Taxpayers can use a EFTPS, a free tax payment system to make all federal tax payments, including income, employment, estimated and excise taxes. Businesses can schedule 120 days in advance and individuals can schedule payments a year in advance. According to the IRS, businesses should enroll in EFTPS to make and tax payments that their Third Party Provider is not making on their behalf. In addition, employers should verify EFTPS payments as part of their bank account reconciliation process.
Split Refunds, Direct Deposit
In IRS Fact Sheet FS-2008-5, the IRS is focusing on splitting a refund among multiple accounts and direct deposit of refunds. Taxpayers who use the split-refund option can have their refunds split among up to three accounts at up to three different U.S. financial institutions. In order to split a refund, the taxpayer must fill out Form 8888, Direct Deposit of Refund to More Than One Account.
The accounts designated must be held by U.S. financial institutions, the financial institutions must accept direct deposits for the type of accounts designated, and the taxpayer must provide accurate account and routing numbers. Taxpayers generally cannot directly deposit their refunds into another person's account; however, in the case of a joint refund, taxpayers can designate deposits to a joint account or to an account controlled by one spouse.
Among the types of accounts taxpayers can choose to direct their refunds to are:
Regular passbook savings or checking accounts;
Brokerage accounts;
IRAs;
Health savings accounts (HSAs);
Archer MSAs'
Coverdell education savings accounts; and
Individual development accounts (IDAs).
In the case of direct deposits to IRAs, the account owners are responsible for informing their IRA trustees of the year for which the deposits are intended and for ensuring that the contributions do not exceed the taxpayers' annual contribution limitations. The IRS is not responsible for the timeliness or contribution amounts related to direct deposit in an IRA.
In some cases, the amount of a taxpayer's refund is changed, generally due to a math error. In the case of a larger-than-expected refund where a split refund has been requested, the difference will be added to the last account designated. If the refund is smaller than expected, the IRS will first deduct the difference from the amount designated for deposit to the last account.
Deposits may also be adjusted in cases where a taxpayer owes delinquent state income taxes, outstanding child support payments or delinquent nontax federal debts. Taxpayers in such cases will receive correspondence from the Department of Treasury's Financial Management Service (FMS) explaining any offset amounts.
Tax Credits
In IRS Fact Sheet FS-2008-2 and IRS Fact Sheet FS-2008-8, the IRS reminds taxpayers about popular, but sometimes overlooked, tax credits. These credits include:
The Earned Income Credit (EITC). The EITC may be available to working families with incomes below $39,783 and childless workers with incomes under $14,590 who have earned income as an employee, independent contractor, farmer or business owner. In certain cases, disability retirees are also eligible for the credit.
The Child Tax Credit. Taxpayers may claim a $1,000 credit for each eligible dependent child under age 17; this credit is in addition to the regular $3,400 exemption claimed per dependent, and should not be confused with the child care credit.
The Credit for Child and Dependent Care Expenses. The credit for child and dependent care expenses, claimed on Form 2441, Child and Dependent Care Expenses, is for child care expenses incurred for dependents under age 13, or for the care of a spouse or dependent unable to care for themselves, in order for the taxpayer to work or look for work.
The Hope Education Credit and the Lifetime Learning Credit. The Hope education credit and Lifetime Learning credit, claimed on Form 8863, can help parents and students pay tuition and required enrollment fees for post-secondary education; there are special rules, including income limitations, which apply to each of these credits.
The Saver's Credit. The saver's credit, claimed on Form 8880, is designed to encourage contributions to IRAs or workplace retirement plans; those eligible are singles and married filing separately taxpayers who earn less than $26,000, heads of households earning less than $39,000 and joint filers earning less than $52,000. To claim the credit on a 2007 return IRA contributions can be made until April 15, 2008.
The Energy-Saving Tax Credit. Taxpayers may claim an energy savings tax credit on Form 5695, for energy-saving improvements made to a principal residence including insulation, exterior doors and windows, water heaters, heat pumps, central air conditioners, furnaces and hot water boilers; the credit is up to $500 with lower limits applied to certain components. There is also a 30-percent credit for the cost of photovoltaic property, solar water heating property and fuel cell property.
The Alternative Motor Vehicle Credit.
Taxpayers who purchased a new hybrid passenger automobile or light truck and placed it in service in 2007 may qualify for the alternative motor vehicle credit under Code Sec. 30B. The amount of the credit depends on the manufacturer and, in some cases, when the vehicle was purchased. For hybrid passenger automobiles or light trucks purchased in 2008, taxpayers may be entitled to a tax credit worth as much as $3400 for the most fuel-efficient models.
Original purchasers may claim the full amount of the allowable credit only up to the end of the first calendar quarter after the quarter in which the manufacturer sells 60,000 hybrid passenger automobiles and light trucks and new advanced lean burn technology motor vehicles. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. For quarters after that fifth quarter, no credit is allowed.
The credit is limited in the 2007 tax year for hybrid vehicles and new advanced lean burn technology motor vehicles manufactured by Toyota Motor Sales, USA, which includes Lexus, that were purchased on or before Sept. 30, 2007. Toyota and Lexus hybrid vehicles and new advanced lean burn technology motor vehicles purchased after Sept. 30, 2007 do not qualify for the credit. The credit for hybrid passenger automobiles and light trucks and new advanced lean burn technology motor vehicles manufactured by American Honda Motor Company, Inc, will begin to phase out in 2008.
A taxpayer cannot claim the credit unless the taxpayer's regular tax liability exceeds the taxpayer's alternative minimum tax liability. The credit cannot be used to reduce regular tax liability below zero and cannot be carried forward or back to another taxable year. Lessees may not claim the credit. However, the credit is available to the owner-lessor.
Tax Assistance
The numerous ways taxpayers can access free assistance with their tax-related concerns is addressed in IRS Fact Sheet FS-2008-7. A comprehensive listing of these services is found in IRS Publication 910, Guide to Free Tax Services. Taxpayers with a personal computer can access a wealth of information on almost every tax topic and check the status of their refund on the IRS's website, www.irs.org. Free help can also be obtained via telephone on individual and business-related tax issues. In-person tax preparation assistance is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites in many communities. The IRS Taxpayers Assistance Centers also offer personal help with tax issues that cannot be handled on-line or by phone, including inquiries, adjustments, letters, notices and payment plans. In addition, the IRS's Taxpayer Advocate Service can help those taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working properly. Low income taxpayers can obtain assistance, for free or for a nominal charge, through a Low Income Taxpayer Clinic. Finally, forms and publications can also be obtained at many libraries and post offices. Most of the IRS materials are available, free of charge, in Braille.
Taxpayer Warnings
IRS Fact Sheet FS-2008-9 discusses various email scams targeting taxpayers. These "phishing" scams use emails that falsely claim to come from the IRS. The IRS again warned taxpayers that the only genuine IRS website is www.irs.gov. Moreover, all official webpages begin with that address. Further, the IRS does not send unsolicited email regarding taxpayers' accounts and never requests taxpayers' personal or financial information, such as Social Security numbers and bank PINS, via email. Therefore, any email soliciting such information should be viewed with caution. Taxpayers who receive suspicious email are encouraged to report it to the IRS. Messages can be forwarded to hishing@irs.gov.">phishing@irs.gov. In addition, taxpayers should report any such activity to law enforcement and the major credit bureaus. For more information, taxpayers should consult IRS Publication 4535, Identity Theft Protection and Victim Assistance.
IRS Fact Sheet 2008-10 urges taxpayers to be careful when choosing a tax preparer. According to the fact sheet, return preparer fraud generally involves the preparation and filing of income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions. Preparers may also fraudulently obtain tax credits, such as the earned income tax credit, by manipulating income figures. The fact sheet reminds taxpayers that, even if they are unaware of false information that may appear on their returns, they are responsible for any additional taxes and interest and may be subject to penalties. The fact sheet includes helpful hints when choosing a return preparer, criminal investigation statistical information on return preparer fraud, case summaries of criminal and civil legal actions against certain return preparers, and directions for reporting suspected tax fraud activity.
IRS Fact Sheet FS-2008-1, 2008FED ¶46,230
IRS Fact Sheet FS-2008-2, 2008FED ¶46,231
IRS Fact Sheet FS-2008-3, 2008FED ¶46,232
IRS Fact Sheet FS-2008-4, 2008FED ¶46,233
IRS Fact Sheet FS-2008-5, 2008FED ¶46,234
IRS Fact Sheet FS-2008-6, 2008FED ¶46,235
IRS Fact Sheet FS-2008-7, 2008FED ¶46,236
IRS Fact Sheet FS-2008-8, 2008FED ¶46,237
IRS Fact Sheet FS-2008-9, 2008FED ¶46,238
IRS Fact Sheet FS-2008-10, 2008FED ¶46,239
IR-2008-1, 2008FED ¶46,240
Other References:
Code Sec. 21
CCH Reference - 2008FED ¶3507.03
Code Sec. 24
CCH Reference - 2008FED ¶3770.01
CCH Reference - 2008FED ¶3770.30
Code Sec. 25A
CCH Reference - 2008FED ¶3830.07
CCH Reference - 2008FED ¶3830.25
CCH Reference - 2008FED ¶3830.75
Code Sec. 25B
CCH Reference - 2008FED ¶3838.10
Code Sec. 25C
CCH Reference - 2008FED ¶3843.10
Code Sec. 25D
CCH Reference - 2008FED ¶3847.04
Code Sec. 30B
CCH Reference - 2008FED ¶4059E.0265
CCH Reference - 2008FED ¶4059E.10
Code Sec. 32
CCH Reference - 2008FED ¶4082.048
CCH Reference - 2008FED ¶4082.12
CCH Reference - 2008FED ¶4082.18
CCH Reference - 2008FED ¶4082.35
Code Sec. 55
CCH Reference - 2008FED ¶5101.035
CCH Reference - 2008FED ¶5101.24
Code Sec. 63
CCH Reference - 2008FED ¶6023.07
CCH Reference - 2008FED ¶6023.10
Code Sec. 151
CCH Reference - 2008FED ¶8005.021
CCH Reference - 2008FED ¶8005.12
Code Sec. 162
CCH Reference - 2008FED ¶8590.55
Code Sec. 213
CCH Reference - 2008FED ¶11,620.6744
Code Sec. 217
CCH Reference - 2008FED ¶12,623.11
Code Sec. 402
CCH Reference - 2008FED ¶18,221.10
Code Sec. 402A
CCH Reference - 2008FED ¶18,250.021
Code Sec. 408
CCH Reference - 2008FED ¶18.922.0229
CCH Reference - 2008FED ¶18,922.0326
CCH Reference - 2008FED ¶18,922.1065
CCH Reference - 2008FED ¶18,922.1068
Code Sec. 6011
CCH Reference - 2008FED ¶35,141.02
CCH Reference - 2008FED ¶35,141.035
CCH Reference - 2008FED ¶35,141.47
Code Sec. 6311
CCH Reference - 2008FED ¶38,089.101
Code Sec. 6402
CCH Reference - 2008FED ¶38,519.026
CCH Reference - 2008FED ¶38,519.37
Code Sec. 7206
CCH Reference - 2008FED ¶41,333.10
CCH Reference - 2008FED ¶41,333.210
Code Sec. 7513
CCH Reference - 2008FED ¶42,702.13
CCH Reference - 2008FED ¶42,702.14
Code Sec. 7526
CCH Reference - 2008FED ¶42,816M.01
Code Sec. 7804
CCH Reference - 2008FED ¶43,266.304
CCH Reference - 2008FED ¶43,266.336
CCH Reference - 2008FED ¶43,266.339
CCH Reference - 2008FED ¶43,266.353
CCH Reference - 2008FED ¶43,266.385
CCH Reference - 2008FED ¶43,266.386
CCH Reference - 2008FED ¶43,266.65
CCH Reference - 2008FED ¶43,266.87
Code Sec. 7805
CCH Reference - 2008FED ¶43,282.0412
Tax Research Consultant
CCH Reference - TRC IRS: 3,058
CCH Reference - TRC IRS: 3,154.15
CCH Reference - TRC IRS: 6,050
CCH Reference - TRC IRS: 6,072
CCH Reference - TRC IRS: 6,250
CCH Reference - TRC IRS: 12,380
CCH Reference - TRC INDIV: 57,050
CCH Reference - TRC INDIV: 57,056.10
CCH Reference - TRC INDIV: 57,250
CCH Reference - TRC INDIV: 57,252
CCH Reference - TRC INDIV: 57,452
CCH Reference - TRC INDIV:57,454
CCH Reference - TRC INDIV: 57,552
CCH Reference - TRC INDIV: 57,706.15
CCH Reference - TRC INDIV: 57,708
CCH Reference - TRC INDIV: 57,806
CCH Reference - TRC INDIV:60,152
CCH Reference - TRC INDIV: 60,154
CCH Reference - TRC FILEBUS: 6106.05
CCH Reference - TRC FILEBUS: 12,250
CCH Reference - TRC FILEBUS: 12,306
CCH Reference - TRC FILEBUS: 12,308.15
CCH Reference - TRC FILEIND: 21,156.05
CCH Reference - TRC PENALTY: 3,260