Friday, January 29, 2010

Taxpayers in Nine States and the District of Columbia File with Different Centers this Year

Washington — The Internal Revenue Service announced today that some taxpayers who file paper income tax returns will send them to different processing centers this year.

Taxpayers in Maine, Maryland, Massachusetts, New Hampshire, Vermont, Virginia and the District of Columbia will now send their tax returns to the IRS Kansas City Service Center in Kansas City, Mo. Taxpayers in Indiana and Michigan will send their tax returns to the IRS Fresno Service Center, in Fresno, Calif. Taxpayers in Alabama will send their tax returns to the IRS Austin Service Center in Austin, Texas.

The IRS continuously monitors work flow at its centers and makes appropriate adjustments by altering the volume of returns to be sent to each. Taxpayers who use the envelope provided with the income tax instructions do not have to be concerned with the address change; their returns automatically will go to the correct center.
Taxpayers who e-file will not be affected by the address changes. Two out of three filers choose IRS e-file; it’s faster, easier, more accurate and more convenient than filing a paper tax return.

For taxpayers who file paper returns, the correct center addresses are on labels inside the tax packages they receive in the mail. Taxpayers who do not receive a package and need the service center address should refer to the back cover of the instructions to Form 1040, Form 1040A and Form 1040EZ.

Tuesday, January 26, 2010

Eight Tips to Help You Choose a Tax Preparer

The IRS urges people to use care and caution when choosing a tax preparer. Remember, you are legally responsible for what’s on your tax return even if it was prepared by an another individual or firm.

Most tax return preparers are professional, honest and provide excellent service to their clients. However, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Therefore, it’s important to find a qualified tax professional.

The following tips will help you choose a preparer who will offer the best service for your tax preparation needs.

1. Check the person’s qualifications Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

2. Check on the preparer’s history Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys.

3. Find out about their service fees Avoid preparers that base their fee on a percentage of the amount of your refund or those who claim they can obtain larger refunds than other preparers.

4. Make sure the tax preparer is accessible Make sure you will be able to contact the tax preparer after the return has been filed, even after April 15, in case questions arise.

5. Provide all records and receipts needed to prepare your return Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

6. Never sign a blank return Avoid tax preparers that ask you to sign a blank tax form.

7. Review the entire return before signing it Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

8. Make sure the preparer signs the form A paid preparer must sign the return as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

You can report abusive tax preparers and suspected tax fraud to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from or order by mail at 800-829-3676.

Three Reasons to Prepare and File Your Taxes Electronically

Last year, 2 out of 3 tax returns were filed electronically. Was yours? If not, here are three important reasons to e-file your return.

• It’s fast Your tax return will get processed more quickly if you use e-file. If there is an error on your return, it will typically be identified and can be corrected right away. If you file electronically and choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days.

• It’s safe The IRS is fully committed to protecting your tax information and e-filed returns are protected by the latest technology. In 20 years, nearly 800 million e-filed returns have been processed safely and securely by the IRS.

• It’s time Don’t miss out on the benefits of e-file, 2 out of 3 taxpayers, 95 million, already get the benefits of e-file.

E-file software reduces the chance of making errors when you prepare your return. However, some people still print the computer generated return and mail it to the IRS instead of hitting the “Send” button. By mailing the return, taxpayers miss out on some important benefits of IRS e-file.

• With e-file, you get the peace of mind that comes with the electronic receipt you’ll receive notifying you that the IRS received your tax return.

• Virtually everyone can prepare a return and file it for free. For the second year, the IRS and its partners are offering the option of Free File Fillable Forms. Another option is Traditional Free File. About 98 million taxpayers – 70% of all taxpayers – are eligible for the IRS Traditional Free File. Traditional Free File is a service offered by software companies and the IRS in partnership to provide free tax preparation software and free filing.

• E-file is available 24 hours a day, seven days a week, from the convenience of your own home.

• If you owe money to the IRS, e-file also allows you to file your tax return early and delay payment up until the due date.

• In 37 states and the District of Columbia, you can simultaneously e-file your federal and state tax returns.

Find out more about E-file at

Ten Tax Topics for Taxpayers with Tots and Teens

Got Kids? They may have an impact on your tax situation. Listed below are the top 10 things the IRS wants you to consider if you have children.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8. Coverdell Education Savings Account This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.

9. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970.

10. Student Loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

The forms and publications on these topics can be found on or by calling 800-TAX-FORM (800-829-3676).

IRS e-file: It’s Safe; It’s Easy; It’s Time

WASHINGTON — IRS e-file, the popular electronic tax return delivery service used by two-thirds of the nation’s taxpayers, opens for business January 15 and marks 20 years of safely and securely transmitting nearly 800 million individual federal tax returns.

The Internal Revenue Service debuted e-file nationally in 1990, delivering 4.2 million tax returns. Last year, IRS e-file delivered 95 million tax returns, 66 percent of all returns filed.

“Electronic filing is more and more popular every year, and most taxpayers now e-file. IRS e-file means faster refunds. It means the option to file now and pay later if you owe additional tax. It means peace of mind knowing the IRS received the return because we send an acknowledgement. Those are the reasons this has been a popular service,” said Doug Shulman, IRS Commissioner. “IRS e-file is safe, it’s easy and everyone should try it.”

Last year, more than 49 million taxpayers missed out on the e-file benefits. The IRS urges taxpayers, especially those people already using tax software, to take the next step and e-file their return or ask their preparer to e-file their return. The IRS urges tax preparers who electronically file some of their clients’ tax returns to consider filing all tax returns through e-file.

The IRS is working on faster acknowledgements of accepted or rejected returns. Last year, taxpayers received an acknowledgement within 48 hours that the IRS had accepted or rejected their return. Paper filers do not receive any acknowledgement. Also, if the IRS rejects an e-filed return, it will provide more specific explanations of the errors that caused the rejection. This will enable taxpayers to make corrections and quickly resubmit their returns.

IRS e-file offers the fastest, safest way for people to receive their tax refunds. By using e-file and direct deposit, taxpayers can get their refunds in as few as 10 days. Taxpayers even can opt to have their refund deposited into two or three financial accounts or purchase a U.S. Savings Bond.

For those who owe additional tax, e-file is still the best option. People can file now and pay later, as long as the payment is received by April 15. Taxpayers can set the date for an automatic withdrawal from their financial accounts or they can pay by credit card. People also can e-file and pay by check by simply attaching the payment to a voucher that is mailed to the IRS.

Other e-file benefits include a reduced error rate (1 percent compared to nearly 20 percent on a paper return), which means a decreased likelihood of hearing from the IRS. Also, federal tax returns are delivered to the IRS through a highly secure, encrypted transmission system. Just like paper returns, e-filed returns remain confidential.

There are three ways to use e-file: through tax preparers, through most tax preparation software or through IRS Free File. The IRS does not charge for e-file. Many tax preparers and software products also offer free e-filing with their services.

As people become more comfortable using computers and the Internet for financial transactions, the IRS has seen a huge growth in the number of people who are preparing their own tax returns with the help of software. For people seeking free electronic options, IRS Free File offers something for almost everyone through two formats.

Traditional Free File provides free tax preparation software and free electronic filing to individuals or families who earn less than $57,000. Traditional Free File is a public-private partnership in which approximately 20 tax software manufacturers make their tax preparation software and e-filing available for free.

Everyone can use Free File Fillable Forms. This service, now in its second year, provides free online tax forms that can be completed and filed electronically. These are electronic versions of IRS paper forms. This program is ideal for people who are comfortable preparing their own returns with little assistance.

People must access Free File through the IRS Web site at and click on Free File or People can read more about Free File at

People looking for a tax preparer who files electronically and for more information on e-file can review IRS e-file for Individuals. Taxpayers also can locate an e-file authorized tax professional nearest to them by doing a zip code search.

New Homebuyer Credit Form Released; Taxpayers Reminded to Attach Settlement Statement and Other Key Documents

WASHINGTON — The Internal Revenue Service today released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.

• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.

• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,

• Property tax records or

• Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where's My Refund? on to track the status of their refund.

More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on

How to Obtain a Transcript of Your Past Tax Information

Taxpayers who need their past tax return information can obtain it from the IRS. Here are nine things to know if you need copies of your federal tax return information.

1. There are two easy and convenient options for obtaining free copies of your federal tax return information — tax return transcripts and tax account transcripts.

2. The IRS does not charge a fee for transcripts, which are available for the current year as well as the past three years.

3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions, such as those offering mortgages and student loans.

4. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.

5. To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.

6. To request a tax return transcript through the mail, individual taxpayers should complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Form 4506T-EZ is only for individuals who filed a Form 1040 series return. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return.

7. You should receive your tax return transcript within 10 working days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript.

8. If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current year as well as the past six years.

9. Visit the IRS Web site,, to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be found at or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Five Ways to Obtain IRS Forms and Publications

The Internal Revenue Service has free tax forms and publications on a wide variety of topics. If you need IRS forms, here are five easy methods for getting the information you need.

1. On the Internet You can access forms and publications on the IRS Web site 24 hours a day, seven days a week, at

2. By Phone You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7:00 am to 10:00 pm local time – except Alaska and Hawaii which are Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions. You should receive your order within 10 days.

3. At Convenient Locations in Your Community During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.

4. By Mail Order your tax forms and publications from the IRS National Distribution Center at 1201 N. Mitsubishi Motorway, Bloomington, IL, 61705-6613. You should receive your products 10 days after receipt of your order.

5. Taxpayer Assistance Centers There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.

The IRS Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt Status

WASHINGTON — The Internal Revenue Service today reminded tax-exempt organizations to make sure they file their annual information form on time. In 2010 the tax-exempt status of any non-profit that has not filed the required form in the last three years will be revoked.

The Pension Protection Act of 2006 requires that non-profit organizations that do not file a required information form for three consecutive years automatically lose their Federal tax-exempt status. This requirement has been in effect since the beginning of 2007.

A list of revoked organizations will be available to the public, as well as state charity and tax officials on this website.

If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Small non-profit organizations with annual receipts of $25,000 or less can file an electronic notice, Form 990-N (e-Postcard). They will need only a few basic pieces of information to file: the organization’s employer identification number, its tax year, legal name and mailing address, any other names used, an Internet address if one exists, the name and address of a principal officer and a statement confirming the organization's annual gross receipts are normally $25,000 or less.

Tax-exempt organizations with annual receipts above $25,000 are required to file the Form 990 or the Form 990-EZ annually. Private foundations file Form 990-PF. Churches and integrated auxiliaries of churches are not required to file Form 990-series returns or notices.

Form 990-series returns and e-Postcards, are due by the 15th day of the 5th month after an organization’s tax year ends.

Ten Things You Should Know about the Making Work Pay Tax Credit

Many working taxpayers are eligible for the Making Work Pay Tax Credit, a provision created by the American Recovery and Reinvestment Act in early 2009.

Here are 10 things the IRS wants you to know about this tax credit to ensure you receive the entire amount for which you are eligible.

1. In 2009 and 2010, the Making Work Pay provision provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.

2. For taxpayers who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes.

3. Taxpayers receiving less than the full amount of the allowable credit through reduced withholding will be entitled to claim any remaining credit when they file their tax return.

4. The amount of the credit actually received during 2009 in the form of reduced withholding will be reported on your 2009 tax return. Taxpayers who do not have taxes withheld by an employer during the year can claim the credit on their 2009 tax return filed in 2010.

5. Taxpayers who file Form 1040 or 1040A will use Schedule M, Making Work Pay and Government Retiree Credits to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.

6. Taxpayers who file Form 1040-EZ will use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Tax Credit.

7. In 2010, you may notice that your paychecks are slightly lower than in 2009. The slight decrease may be because of the Making Work Pay Credit. Most of the credit for wage earners is distributed through reduced withholding. The credit – which was spread out over nine months last year – is being spread over 12 months this year. A little less credit in each paycheck means slightly higher withholding. But don’t worry, in the end it all adds up.

8. Certain taxpayers should review their tax withholding to ensure enough tax is being withheld in 2010. Those who should pay particular attention to their withholding include: married couples with two incomes, individuals with multiple jobs, dependents, pensioners, Social Security recipients who also work, and workers without valid Social Security numbers.

Having too little tax withheld could result in potentially smaller refunds or – in limited instances – small balance due rather than an expected refund.

9. To ensure your current withholding is appropriate for your individual situation, you can review Publication 919, How Do I Adjust My Tax Withholding? You can also perform a quick check of your withholding using the interactive IRS Withholding Calculator on

10. If you find you need to adjust your withholding, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer.

Visit for more information about the making Work Pay Tax Credit, Schedule M, Form W-4 or Publication 919. You can also call 800-TAX-FORM (800-829-3676) to order forms and publications.

IRS Announces Qualified Disaster Treatment for Haiti

Washington — The Internal Revenue Service today issued guidance that designates the earthquake in Haiti in January 2010 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist victims in areas affected by the January 2010 earthquake in Haiti without affecting their tax-exempt status.

Charities usually fall into one of two categories — public charities or private foundations. Under the tax law, a private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

Qualified disasters include Presidentially declared disasters and any other event that the Secretary of the Treasury determines to be catastrophic. The IRS has determined that the earthquake in Haiti that occurred this month is an event of catastrophic nature for purposes of the federal tax law.

The IRS will presume that qualified disaster relief payments made by a private foundation to employees and their family members in areas affected by the earthquake in Haiti to be consistent with the foundation's charitable purposes.

Ten Facts About Claiming Donations Made to Haiti

If you are donating to charities providing earthquake relief in Haiti, you may be able to claim those donations on your 2009 tax return. Here are 10 important facts the Internal Revenue Service wants you to know about this special provision.

1. A new law allows you to claim donations for Haitian relief on your 2009 tax return, which you will be filing this year.

2. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.

3. To be eligible for a deduction on the 2009 tax return, donations must be made after Jan. 11, 2010 and before March 1, 2010.

4. In order to be deductible, contributions must be made to qualified charities and can not be designated for the benefit of specific individuals or families.

5. The new law applies only to cash contributions.

6. Cash contributions made by text message, check, credit card or debit card may be claimed on your federal tax return.

7. You must itemize your deductions in order to claim these donations on your tax return.

8. You have the option of deducting these contributions on either your 2009 or 2010 tax return, but not both.

9. Contributions made to foreign organizations generally are not deductible. You can find out more about organizations helping Haitian earthquake victims from agencies such as the U.S. Agency for International Development (

10. Federal law requires that you keep a record of any deductible donations you make. For donations by text message, a telephone bill will meet the record-keeping requirement if it shows the name of the organization receiving your donation, the date of the contribution, and the amount given. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check or a receipt from the charity. Receipts should show the name of the charity, the date and amount of the contribution.

For more information see IRS Publication 526, Charitable Contributions and Publication 3833 , Disaster Relief: Providing Assistance through Charitable Organizations. To determine if an organization is a qualified charity visit, keyword "Search for Charities". Note that some organizations, such as churches or governments, may be qualified even though they are not listed on

Haiti Relief Donations Qualify for Immediate Tax Relief

WASHINGTON — People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

"Americans have opened their hearts to help those affected by the Haiti earthquake," said IRS Commissioner Doug Shulman." This new law provides an immediate tax benefit for the many taxpayers who have made generous donations."

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.

The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

Do I Have To File A Tax Return

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

Check the Individuals section of or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with the IRS this year.

Even if you don’t have to file, here are eight reasons why you may want to file:

1. Federal Income Tax Withheld If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year's tax.

2. Making Work Pay Credit You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.

4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.

5. Additional Child Tax Credit This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

6. Refundable American Opportunity Credit This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.

7. First-Time Homebuyer Credit The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.

8. Health Coverage Tax Credit Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return.

For more information about filing requirements and your eligibility to receive tax credits, visit

Thursday, January 14, 2010

Fighting the IRS

Your chances of winning a fight with the IRS are about as great as your chances when fighting City Hall.

National Taxpayer Advocate Nina Olson, in her recently-released annual report to Congress, listed the 10 tax issues most litigated in the federal courts. Of the 923 cases involving those issues, taxpayers prevailed in whole, or in part, in 132, or roughly 14 percent.

Taxpayers who were represented by counsel did somewhat better when the numbers were broken down—they won 20 percent, or 54 of 265 cases; pro se taxpayers prevailed in 12 percent, or 78 of 658 cases.

Olson reported that the trend of significant numbers of pro se taxpayers continued during the reporting period of June 1, 2008 through May 31, 2009. Taxpayers represented themselves in 71 percent of the 923 cases. The highest percentage of pro se taxpayers went to court over penalties for frivolous issues or positions raised or taken on returns, family status issues, failure to file returns and estimated tax penalties.

Pro se taxpayers, however, had significantly greater success than represented taxpayers in litigation over frivolous issues penalty and family status, according to the report.

“With respect to the frivolous issues penalty, the data suggest either (1) an unwillingness on the part of representatives to accept these cases, or (2) a lack of demand for representation by these taxpayers,” said Olson. “In addition, the data for family status issues suggest that there may be a lack of access to representation for the low and middle income taxpayers impacted by the various family status provisions of law, and a need for more low income taxpayer clinics and clinic volunteers to provide free or low cost representation.”

She also suggested that the higher success rates for pro se taxpayers on these two types of issues “indicates a potential failure in communications between taxpayers and the IRS at the administrative level.”

The 10 most litigated tax issues, in order of greatest number of cases, are: collection due process hearings; summons enforcement; trade or business expenses; gross income; accuracy-related penalty; frivolous issues penalty; civil actions to enforce federal tax liens or to subject property to payment of tax; failure to file penalty and estimated tax penalty; family status, and relief from joint and several liability for spouses.

Monday, January 11, 2010

IRS Proposes New Registration, Testing and Continuing Education Requirements for Tax Return Preparers Not Already Subject to Oversight

Higher Standards to Boost Protections and Service for Taxpayers,
Increase Confidence in System, Yield Greater Compliance with Tax Laws

WASHINGTON –– The Internal Revenue Service kicked off the 2010 tax filing season today by issuing the results of a landmark six-month study that proposes new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

To bring immediate help to taxpayers this filing season, the IRS also announced a sweeping new effort to reach tax return preparers with enforcement and education. As part of the outreach effort, the IRS is providing tips to taxpayers to ensure they are working with a reputable tax return preparer.

"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers," said IRS Commissioner Doug Shulman. "Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Based on the results of the Return Preparer Review released today, the IRS recommends a number of steps that it plans to implement for future filing seasons, including:

• Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.

• Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.

• Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.

• Extending the ethical rules found in Treasury Department Circular 230 -- which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS -- to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.

Other measures the IRS anticipates taking are highlighted in the 55-page report released today.

Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.

First Step: Letters to 10,000 Preparers

The initiatives announced today will take several years to fully implement and will not be in effect for the current 2010 tax season. In the meantime, the IRS is taking immediate action to step up oversight of preparers for the 2010 filing season.

Beginning this week, the IRS is sending letters to approximately 10,000 paid tax return preparers nationwide. These preparers are among those with large volumes of specific tax returns where the IRS typically sees frequent errors. The letters are intended to remind preparers to be vigilant in areas where the errors are frequently found, including Schedule C income and expenses, Schedule A deductions, the Earned Income Tax Credit and the First Time Homebuyer Credit.

Thousands of the preparers who receive these letters will also be visited by IRS Revenue Agents in the coming weeks to discuss their obligations and responsibilities to prepare accurate tax returns. This is part of a broader initiative by the IRS to step up its efforts to ensure paid tax return preparers are assisting clients appropriately. Separately, the IRS will be conducting other compliance and education visits with return preparers on a variety of issues.

In addition, the IRS will more widely use investigative tools during this filing season aimed at determining tax return preparer non-compliance. One of those tools will include visits to return preparers by IRS agents posing as a taxpayer.

During this effort, the IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.

Steps Taxpayers Can Take Now to Find a Preparer

In addition to the stepped-up oversight of preparers, Shulman also announced a new outreach effort to help make sure taxpayers choose a reputable preparer this filing season. That’s particularly important because taxpayers are legally responsible for what is on their tax returns -- even if those returns are prepared by someone else.

“Taxpayers should protect themselves from unscrupulous preparers,” Shulman said. “There are some simple steps people can take to choose a reputable tax preparer.”

Most tax return preparers are professional, honest and provide excellent service to their clients. Shulman offered the following points for taxpayers to keep in mind when selecting a tax return preparer:

• Be wary of tax preparers who claim they can obtain larger refunds than others.

• Avoid tax preparers who base their fees on a percentage of the refund.

• Use a reputable tax professional who signs the tax return and provides a copy.

• Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.

• Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.

• Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.

More information about choosing a tax return preparer and avoiding fraud can be found in IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.

Resources for Taxpayers this Filing Season

This filing season, the IRS has many free resources to help taxpayers prepare and file their returns. has a variety of features to help taxpayers. There’s a special section to help taxpayers get information on a variety of Recovery tax benefits. The web site also has information for people who lost a job or experienced financial problems in 2009. also has information to help people track their refund. will once again host the IRS Free File program, which allows virtually everyone to file their taxes for free through the web site. Free File and the rest of the IRS e-file program will open later this month.

IRS Presents: Top Ten Tax Time Tips

While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.

2. Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.

3. Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.

4. Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit to learn more.

5. Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.

6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.

7. Visit again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.

8. Remember this number: 17 Check out Publication 17, Your Federal Income Tax on It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.

9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try or call our customer service number at 800-829-1040.

Five Filing Facts for Recently Married or Divorced Taxpayers

If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.

Here are five facts from the IRS for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.

2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3. Informing the SSA of a name change is a snap; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.

4. Form SS-5 is available on SSA’s Web site at, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.

5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on, or by calling 800-TAX-FORM (800-829-3676).

Eight Facts About Filing Status

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.

6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

There’s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on or by calling 800-TAX-FORM (800-829-3676).

Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability

Revenue Procedure 2010-13 requires taxpayers to report to the Internal Revenue Service their groupings and regroupings of activities and the addition of specific activities within their existing groupings of activities for purposes of section 469.

Internal Revenue Code Section 469 generally provides that income, losses, and credits from an activity will be passive unless the taxpayer materially participates in the activity. Treasury Regulation Section 1.469-4 allows taxpayers to group activities provided they make up an appropriate economic unit to enable taxpayers to meet the material participation standards.

Revenue Procedure 2010-13 will be published in Internal Revenue Bulletin 2010-4 on January 25, 2010.

Five Important Facts about Dependents and Exemptions

When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.

1. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.

2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.

3. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.

4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on or can be ordered by calling 800-TAX-FORM (800-829-3676).

Choose the Tax Form that Best Fits Your Needs

To file your 2009 individual tax return, you’ll have to decide which form to use…unless you e-file. If you file electronically, the software automatically selects the simplest and best form for you. Whether you use e-file or prepare on paper, using the simplest form will help avoid costly errors or processing delays. And remember, if you file electronically, it speeds up the processing of your tax return and the delivery of your refund.

Here are things to consider when deciding which IRS form to file.

Use the 1040EZ if:
• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You and your spouse – if married -- are under age 65 and not blind
• You are not claiming any dependents
• Your interest income is$1,500 or less
• You are not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses

Use the 1040A if:
• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. You must use the 1040 if:
• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property

All IRS forms, instructions and information about e-file can be found on