Recently released IRS 2010 statistics show an increase in foreign investment activity by U.S. taxpayers, and reflect changes in information reporting requirements. Details include:

• From 2006 to 2010:
  • 104.1 percent increase in the number of Form 3520 returns reporting foreign trust transactions and certain foreign gifts
  • 84.6 percent increase in the number of Form 3520-A foreign “grantor” trust returns

• In 2010:
  •  almost $1.5 billion in assets was transferred to foreign trusts by U.S. persons
  • 7,051 foreign grantor trusts reported -
    • $35.3 billion in total assets
    • $4.0 billion of distributions
    • $1.1 billion of net income (loss)
  • $7.3 billion in gifts/bequests were received by U.S. persons from nonresident aliens, foreign estates, foreign corporations, and foreign partnerships (in transactions generally separate from foreign trust activity)

To see the most recent SOI (Statistics of Income) updates, visit the “What’s New” webpage on the IRS website.

Taxpayers facing penalties from the IRS for filing their returns late or paying their taxes late may not be required to pay them. In 2001, the IRS initiated the First-Time Abate (FTA) program. Under this program, if a taxpayer has paid or arranged to pay the delinquent tax and has been fully tax-compliant for the past three years, the IRS will grant a one-time waiver of the late payment and late filing penalties. This relief also applies to Continue Reading »

Now that April 15 has passed, many taxpayers think that they can forget about their tax situation until next year. On the contrary, taxpayers with a large refund or a sizeable balance due on their 2012 tax return may want to consider adjusting their paycheck withholding to better reflect their actual tax situation. Those who are receiving a large refund may want to reduce their withholding while taxpayers with a large balance due may want to increase the amount being withheld from their paycheck by filing a new Form W-4 with their employer.

In addition, it’s important to factor in any lifecycle changes, such as marriage, divorce, the birth of a child, or a job change, as well as anticipated changes in income streams and deductible expenses. Taxpayers also need to be aware of ever-changing legislation and the effect it can have on their tax liability.

Note that employers are not required to adjust withholding for the new unearned income Medicare contribution tax of 3.8 percent, which affects higher-income taxpayers and will be calculated on individual tax returns.

Additional withholding for the 0.9 percent Medicare surtax, however, will be deducted by an employer once an employee’s wages exceed $200,000, regardless of marital status. Subject to various thresholds ($250,000 for joint returns, $125,000 for married taxpayers filing separately, and $200,000 in all other cases), any additional amount due for this tax will be reflected on taxpayers’ returns. Individual situations may warrant a closer look to avoid being underwithheld and subject to underpayment penalties. This can occur for certain taxpayers (married filing jointly) with individual wages of under $200,000 that have combined wages exceeding $250,000.  Other situations can result in an overpayment, so taxpayers should pay special attention in this area and complete a revised Form W-4 if needed.

Although some taxpayers count on having a large refund and use it as a savings vehicle, others cringe at the thought of the IRS using their money interest-free all year (even though interest rates are as low as they are!). Many taxpayers consider the best scenario to be one in which their tax withholding mirrors their tax liability, but it really is a matter of personal preference.

Taxpayers should be aware that traditional IRA holders have a chance for potential income tax savings with the 2013 tax increases. Tax savings can be realized by traditional IRA holders that Continue Reading »

In the wake of the Boston Marathon explosions on April 15, the IRS recently announced a three month tax extension to provide filing and payment relief to taxpayers in Suffolk County (which includes Boston) as well as others affected by this tragedy. As a result, these taxpayers have until July 15, 2013 to file their 2012 tax returns and make any payments normally due by April 15, 2013.

Eligible taxpayers include individuals living in Suffolk County, MA as well as victims, their families, first responders, others affected taxpayers living outside of Suffolk County, and taxpayers with tax preparers that were adversely impacted.

Filing and payment penalties will be waived as long as the extended July 15 deadline is met, but interest will still be applied to any payments made after April 15.

If additional time is needed, affected taxpayers have until July 15, 2013 to file Form 4868 for an extension of time until Oct. 15, 2013.

Taxpayers living in Suffolk County automatically receive this extension and do not have to do anything further. Eligible taxpayers living outside of Suffolk County should call 1-866-562-5227 to identify themselves with the IRS before filing or making a payment. In addition, eligible taxpayers can call this number to have penalties abated if they receive an IRS notice.

Taxpayers that incur a loss on a rental property must meet certain criteria prior to deducting this loss against other ordinary income like wages and business income. The IRS automatically presumes that rental real estate income or loss is passive in nature and losses can only be used to offset other passive income. This is true even if the taxpayer materially participates in the rental activity. There are, however, two exceptions to this treatment. Continue Reading »

The American Taxpayer Relief Act of 2012 extended the Work Opportunity Tax Credit (WOTC) for certain classifications of workers through Dec. 31, 2013.

In March 2013, the IRS issued guidance allowing additional time for employers to submit required documentation to the appropriate state workforce agencies. The April 29, 2013 deadline relates to employees hired during the period when the WOTC credit was expired and before reinstatement. 

Employers are required to obtain certification that an individual is a member of a targeted group before the employer may claim the credit. Within 28 days after the eligible worker begins employment, the employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency. Without the submission of the required documentation, an employer is unable to claim the credit.  

WOTC provides a tax credit to employers calculated as a percentage of the qualified wages paid to the qualified workers in their first, and sometimes second, year of employment. This percentage credit may be calculated differently based on the target group in which the employee is categorized.

Targeted groups qualifying for the WOTC credit are as follows: 

• Qualified recipient of Temporary Assistance for Needy Families (TANF)
• Qualified veteran
• Qualified ex-felon
• Designated community resident
• Vocational rehabilitation referral
• Summer youth employees
• SNAP (Supplemental Nutrition Assistance Program) recipient receiving food stamps
• SSI (Supplemental Security Income) recipients that are disabled adults/children with limited income

For employees hired between Jan. 1, 2012 and March 31, 2013, there is still time to submit the required applications in order to obtain this valuable tax credit.

Are you a taxpayer that missed the April 15 filing deadline? Here are a few important points from the IRS to keep in mind:

• File as soon as possible.  For taxpayers that are due a refund, there is no penalty for filing after the deadline. For those with a tax liability, it is important to pay as soon as possible to minimize penalties and interest.
• Penalties and interest may be assessed. Filing or paying late can result in additional IRS charges. Fees may be reduced, however, for taxpayers that have reasonable cause for missing the deadline. Taxpayers should contact SS&G regarding their specific situation.
• E-file is still available. This is usually the quickest and easiest option to file a tax return.
• Pay all or the most possible on any balance due. If a balance is owed on a tax return, taxpayers should try to pay as much as they can when filing their tax return, even if it is less than the total amount due. Paying the remaining balance as soon as possible will help to reduce interest and penalties.
• Installment agreements are a payment alternative. The IRS provides for installment plan agreements as an option for those taxpayers that cannot pay when a large balance is due on their tax return. Eligible taxpayers may apply for a payment plan with the IRS online.  
• Be aware of outstanding refunds. Taxpayers should keep in mind that they could be entitled to a refund even if they are not required to file a tax return. Note that the refund could be forfeited after three years, so it is important that tax returns be filed as soon as possible.

Starting on May 8, 2013, U.S. employers must use the revised Form I-9, Employment Eligibility Verification for all new hires and reverifications. The new form is longer and has expanded instructions, and failure to comply with the requirements can result in substantial fines. Employers must retain the form for the later of three years after the hire date or one year after termination of employment, and make it available for inspection by designated officials from authorized U.S. government agencies. Note that the new form is not required for current employees with a properly completed Form I-9 already on file.

Questions about the new Form I-9? Contact your SS&G tax professional.

Wondering about your chance of being audited?  Will your odds change if you claim certain tax credits? Are more taxpayers being assessed penalties?

The 2012 Data Book issued by the IRS provides statistical data on a wide variety of agency activities from Oct. 1, 2011, to Sept. 30, 2012, including returns filed, taxes collected, refunds issued, areas related to enforcement, taxpayer assistance, tax-exempt activities, chief counsel workload, and IRS budget and workforce.

Wondering what the stats show? Here’s a brief sampling!

• In 2011, about 1 percent of individual tax returns filed were audited (1.1 percent in the prior year).
• In fiscal year 2012, 32.9 percent of individual tax returns audited were for returns with an earned income tax credit (30.9 percent in the prior year).
• The majority (75.7 percent) of individual audits was correspondence audits, and the remainder (24.3 percent) was performed by revenue agents, tax compliance officers, tax examiners and revenue officer examiners.
• The number of criminal examinations initiated by the IRS rose from 4,720 to 5,125 in fiscal year 2012.
• The IRS received 64,000 offers-in-compromise in fiscal year 2012 compared to 59,000 in fiscal year 2011.
• For fiscal year 2012, the “top” types of civil penalties assessed by the IRS on individuals were:
  • failure to pay (60.2 percent);
  • underpayment of estimated tax (24.8 percent); and
  • delinquency (11.5 percent).
• Approximately 2.7 million IRS notices were sent regarding math errors on 2011 individual tax returns.
• On average, the IRS spent 48 cents to collect $100 in tax revenue during the fiscal year (lowest since 2008)!