Archive for October, 2011

‘Education tax credit mistakenly claimed by millions, report says’

From the Washington Post:

Millions of American taxpayers may have erroneously claimed an education tax credit last year that is designed to provide relief as part of the Obama administration’s economic stimulus program, according to a new federal watchdog report disputed by the Internal Revenue Service.

As many as 2.1 million taxpayers may have erroneously claimed a total of $3.2 billion by taking advantage of the American Opportunity Tax Credit, which provides up to $2,500 in relief for college students paying tuition and related expenses. The tax credit, once known as the Hope Scholarship Credit, was expanded as part of the 2009 economic stimulus program.

According to a report by the Treasury Inspector General for Tax Administration set for release Thursday, 1.7 million taxpayers received $2.6 billion in education credits that appear to be erroneous based on IRS records.

Read more here.

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‘IRS urges tax professionals to prepare now for new e-file rules’

From the IRS:

IR-2011-100, Oct. 12, 2011

WASHINGTON — The Internal Revenue Service today advised tax professionals and tax firms that do not have Electronic Filing Identification Numbers (EFINs) to start the process to obtain EFINs now so they can meet new e-file requirements for 2012.

Starting in January 2012, any paid preparer or firm that reasonably anticipates preparing and filing 11 or more Form 1040 series returns, Form 1041 returns, or a combination of Form 1040 series returns and Form 1041 returns generally must use IRS e-file. Their clients who file these forms, however, may independently choose to file by paper.

To become an Authorized IRS e-file Providers, preparers must create an e-Services account, submit an EFIN application and pass a suitability check. The approval process can take 45 days or more. For a firm or an individual, only one EFIN is needed.

The 2012 requirement will mark the second and final phase of implementing a law that was intended to boost the electronic filing rate of income tax returns for individuals, trusts and estates. In 2011, the e-file mandate pertained to any paid preparer or firm that anticipated preparing and filing 100 or more returns. The e-file rate by paid preparers increased 12 percent in 2011.

Currently, nearly 80 percent of individual tax returns are filed electronically. The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990.

Preparers can review the process on IRS.gov at Become an Authorized e-file Provider or find additional guidance at the Frequently Asked Questions section.

If the requirement will cause undue hardship, preparers may seek a one-year waiver by submitting Form 8944, Preparer e-file Hardship Waiver Request. If a client wants to file a paper return, the preparer should include Form 8948, Preparer Explanation for Not Filing Electronically, with the return. A taxpayer choice statement should be obtained and kept with the preparer’s records.

Form 8948 does not have to be submitted with returns that are not currently accepted electronically by the IRS or the IRS has instructed taxpayers not to file them electronically. These returns are exempt from the federal e-file requirement. Other limited exemptions may apply.

Go to www.irs.gov/taxpros for information.

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Report: ‘Delinquent taxes won’t hunt’

From the Minden Press-Herald:

Louisiana is a sportsman’s paradise, it says so on the license plates. Hunting and fishing are an integral part of that paradise. However, Louisiana taxpayers who don’t want to pay their taxes may not get to do either. Ignoring delinquent state income tax bills can result in suspension or denial of hunting, fishing or driver’s licenses.

According to state law, taxpayers who owe more than $500 in delinquent individual state income tax may have their hunting or fishing licenses suspended or denied. Those who owe more $1000 may have their driver’s license suspended or denied.

The laws came into effect on Jan. 1, 2004.

According to Louisiana Department of Revenue (LDR) Press Secretary Byron Henderson, the driver’s license suspension program was implemented in March of 2008, with the hunting and fishing license suspension program following in May of 2010.

Prior to license suspension, the LDR sends delinquent bills and finally a certified letter.

Read more here.

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IRS: ‘IRS Proposed Regulations Require Tax Preparers to File Due Diligence Checklist with All Earned Income Tax Credit Claims Submitted in 2012′

IR-2011-98, Oct. 6, 2011

WASHINGTON —The Internal Revenue Service announced today that it is issuing proposed regulations that would require paid tax return preparers, beginning in 2012, to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC). It is the same form that is currently required to be completed and retained in a preparer’s records.

The due diligence requirement, enacted by Congress over a decade ago, was designed to reduce errors on returns claiming the EITC, most of which are prepared by tax professionals.

The IRS created Form 8867, Paid Preparer’s Earned Income Credit Checklist, to help preparers meet the requirement by obtaining eligibility information from their clients. Preparers have been required to keep copies of the form, or comparable documentation, which is subject to review by the IRS. To help ensure compliance with the law and that eligible taxpayers receive the right credit amount, the proposed regulations would require preparers, effective Jan. 1, 2012, to file the Form 8867 with each return claiming the EITC.

Further details can be found in REG-140280-09. Comments on the proposed regulations are due by Nov. 10, 2011, and a public hearing on the proposed regulations is scheduled for Nov. 7, 2011.

The EITC benefits low-and moderate-income workers and working families and the tax benefit varies by income, family size and filing status. Unlike most deductions and credits, the EITC is refundable –– taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.

Although as many as one in five eligible taxpayers fail to claim the EITC, some of those who do claim it either compute it incorrectly or are ineligible. The IRS is proposing this step as part of its efforts to ensure that the credit is afforded to taxpayers who qualify.  For 2009, over 26 million people received nearly $59 billion through the EITC. Tax professionals prepare close to 66 percent of these claims. 

More information about EITC and the due diligence requirement for tax return preparers is available on IRS.gov.

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