WASHINGTON — The Internal Revenue Service today issued its 2010 “dirty dozen” list of tax scams, including schemes involving return preparer fraud, hiding income offshore and phishing.
“Taxpayers should be wary of anyone peddling scams that seem too good to be true,” IRS Commissioner Doug Shulman said. “The IRS fights fraud by pursuing taxpayers who hide income abroad and by ensuring taxpayers get competent, ethical service from qualified professionals at home in the U.S.”
Tax schemes are illegal and can lead to imprisonment and fines for both scam artists and taxpayers. Taxpayers pulled into these schemes must repay unpaid taxes plus interest and penalties. The IRS pursues and shuts down promoters of these and numerous other scams.
The IRS urges taxpayers to avoid these common schemes:
Return Preparer Fraud
Dishonest return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by promising refunds that are too good to be true. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued injunctions ordering hundreds of individuals to cease preparing returns and promoting fraud, and the Department of Justice has filed complaints against dozens of others, which are pending in court.
To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of steps for future filing seasons. These include a requirement that all paid tax return preparers register with the IRS and obtain a preparer tax identification number (PTIN), as well as both competency tests and ongoing continuing professional education for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents.
Setting higher standards for the tax preparer community will significantly enhance protections and services for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term. Other measures the IRS anticipates taking are highlighted in the IRS Return Preparer Review issued in December 2009.
Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from over 14,700 voluntary disclosures received last year. While special civil-penalty provisions for those with undisclosed offshore accounts expired in 2009, the IRS continues to urge taxpayers with offshore accounts or entities to voluntarily come forward and resolve their tax matters. By making a voluntary disclosure, taxpayers may mitigate their risk of criminal prosecution.
Phishing
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Scammers may also use phones and faxes to reach their victims.
Scam artists will try to mislead consumers by telling them they are entitled to a tax refund from the IRS and that they must reveal personal information to claim it. Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.
Taxpayers who receive suspicious e-mails claiming to come from the IRS should not open any attachments or click on any of the links in the e-mail. Suspicious e-mails claiming to be from the IRS or Web addresses that do not begin with http://www.irs.gov should be forwarded to the IRS mailbox: phishing@irs.gov.
Filing False or Misleading Forms
The IRS is seeing various instances where scam artists file false or misleading returns to claim refunds that they are not entitled to. Under the scheme, taxpayers fabricate an information return and falsely claim the corresponding amount as withholding as a way to seek a tax refund. Phony information returns, such as a Form 1099-Original Issue Discount (OID), claiming false withholding credits usually are used to legitimize erroneous refund claims. One version of the scheme is based on a false theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.
Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.
Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.
Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.
Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.
Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.
Zero Wages
Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.
The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.
Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and potentially subjects those who improperly claim the credit to a $5,000 penalty.
How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.
Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.
Tuesday, March 16, 2010
Monday, March 15, 2010
Nine Things You Should Know about Penalties
The tax filing deadline is approaching. If you don’t file your return and pay your tax by the due date you may have to pay a penalty. Here are nine things the IRS wants you to know about the two different penalties you may face if you do not pay or file on time.
1. If you do not file by the deadline, you might face a failure-to-file penalty.
2. If you do not pay by the due date, you could face a failure-to-pay penalty.
3. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
5. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
6. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
7. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
8. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
9. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
1. If you do not file by the deadline, you might face a failure-to-file penalty.
2. If you do not pay by the due date, you could face a failure-to-pay penalty.
3. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
5. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
6. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
7. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
8. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
9. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Friday, March 5, 2010
Ten Facts about Claiming the Child Tax Credit
The Child Tax Credit is a valuable credit that can significantly reduce your tax liability. Here are 10 important facts from the IRS about this credit and how it may benefit your family.
1. Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test - To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2009.
4. Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test - You must claim the child as a dependent on your federal tax return.
7. Citizenship Test - To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test - The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations - The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child Tax Credit - If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
For more information, see IRS Publication 972, Child Tax Credit, available at the IRS.gov or by calling 800-TAX-FORM (800-829-3676).
1. Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test - To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2009.
4. Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test - You must claim the child as a dependent on your federal tax return.
7. Citizenship Test - To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test - The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations - The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child Tax Credit - If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
For more information, see IRS Publication 972, Child Tax Credit, available at the IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Thursday, March 4, 2010
Bookkeeper and Employee Theft
I had a client who went through a very difficult period of time a number of years ago due to a bookkeeper (and a few other employees) who were literally robbing the business blind. The owner of the business had no idea what his bookkeeper was doing because he NEVER double checked any of her work. It was a small business – the owner and his wife, a bookkeeper, and 5 other employees. Here’s the story, as told to me by the business owner.
Crime # 1
The business owner (we will call him Jack) owned his business for about 20 years. He hired a new bookkeeper who was good at her job. So good in fact, that Jack felt he didn’t have to check her work after about one year. (We will call the bookkeeper Lisa.) 18 months after she started working for Jack, Lisa began to embezzle.
Jack had 5 employees whom he provided cell phones for, as well as one phone for himself, for a total of 6 cell phones. Lisa had a good friend who worked for a cell phone competitor. Between Lisa and this friend, they got another cell phone (similar to the ones used by Jack), and had this cell phone put on Jack’s business cell phone account. These charges were added for about 3 years before Jack accidentally stumbled onto the situation by accident. Lisa had left a recent cell bill on her desk and Jack saw the bill.
Jack immediately contacted the phone company regarding the 7th phone and was told he did not have authorization to remove it from the bill. The phone company did not believe that Jack was the owner of the company, or that he was the only person authorized to add or remove phones to his business account. This resulted in a 6-month battle between Jack and the phone company before Jack was able to have the additional phone removed.
Crime # 2
During the 6 month cell phone battle, Lisa convinced two other employees to help her steal products from the company. She would order 100 items of a product the company normally ordered, when the company only needed 50 or 60 items. The other employees would then receive the 50 or 60 items into the inventory, while the remaining items were placed in the employees vehicles (including Lisa’s) when the owner was not on the premises. With Lisa’s help, the employees would sell these products to Jack’s business customers at steeply discounted prices (often for less than what the product actually cost).
Jack’s Stand
Jack had noticed that during Lisa’s employment, business had been slowing down – that sales were not as high as they had been in previous years – but he never knew why. He trusted his bookkeeper, and his CPA never verified any work done by the bookkeeper either. Jack NEVER took inventory, or compared vendor invoices to items received.
Needless to say, Jack got wise to the bookkeeper as a result of the cell phone bill he found on her desk. He asked her on a weekly basis whether she had taken the additional phone off the bill (which she always said she would get to, but never did anything about). Jack finally fired Lisa and all other workers involved during that time. However, before he did, Lisa destroyed all evidence linking her to any embezzlement (including hard copies of invoices) and ALL computerized accounting records. She destroyed this information in such a way that there was no way to recover any of it. Because of this, Jack was unable to prosecute Lisa or prove anything else.
Moral of this story (especially for small business owners):
• NEVER trust all of your bookkeeping to be done by just one person without periodically checking the work yourself. As a business owner, you have every right (as well as the responsibility) to know how your business is doing financially. You have the right to see all vendor invoices and to check those invoices for accuracy. Furthermore, you should be the person who authorizes all payments to vendors (or to anyone else), including payroll for employees.
• If your business carries any kind of inventory, you should perform an annual inventory count. (This is required for income tax purposes anyway.) When you purchase products, you should periodically spot check the products that arrive with the vendor invoices and other shipping documentation to verify that you are receiving everything that was ordered.
• If your company receives services of any kind (cell phone service, etc.), periodically look at the vendor invoices to see what services you are being billed for. Sometimes vendors will charge you for services not properly authorized by you.
• Bookkeeper theft is not always easy to catch, but will never be caught if the business owner or other company officials NEVER check the work of the bookkeeper — especially in small business settings. Small businesses do not always have the ability to segregate duties in the “accounting” function of the business, so almost all work is done by one or two people, with no way to separate certain functions to other employees.
Crime # 1
The business owner (we will call him Jack) owned his business for about 20 years. He hired a new bookkeeper who was good at her job. So good in fact, that Jack felt he didn’t have to check her work after about one year. (We will call the bookkeeper Lisa.) 18 months after she started working for Jack, Lisa began to embezzle.
Jack had 5 employees whom he provided cell phones for, as well as one phone for himself, for a total of 6 cell phones. Lisa had a good friend who worked for a cell phone competitor. Between Lisa and this friend, they got another cell phone (similar to the ones used by Jack), and had this cell phone put on Jack’s business cell phone account. These charges were added for about 3 years before Jack accidentally stumbled onto the situation by accident. Lisa had left a recent cell bill on her desk and Jack saw the bill.
Jack immediately contacted the phone company regarding the 7th phone and was told he did not have authorization to remove it from the bill. The phone company did not believe that Jack was the owner of the company, or that he was the only person authorized to add or remove phones to his business account. This resulted in a 6-month battle between Jack and the phone company before Jack was able to have the additional phone removed.
Crime # 2
During the 6 month cell phone battle, Lisa convinced two other employees to help her steal products from the company. She would order 100 items of a product the company normally ordered, when the company only needed 50 or 60 items. The other employees would then receive the 50 or 60 items into the inventory, while the remaining items were placed in the employees vehicles (including Lisa’s) when the owner was not on the premises. With Lisa’s help, the employees would sell these products to Jack’s business customers at steeply discounted prices (often for less than what the product actually cost).
Jack’s Stand
Jack had noticed that during Lisa’s employment, business had been slowing down – that sales were not as high as they had been in previous years – but he never knew why. He trusted his bookkeeper, and his CPA never verified any work done by the bookkeeper either. Jack NEVER took inventory, or compared vendor invoices to items received.
Needless to say, Jack got wise to the bookkeeper as a result of the cell phone bill he found on her desk. He asked her on a weekly basis whether she had taken the additional phone off the bill (which she always said she would get to, but never did anything about). Jack finally fired Lisa and all other workers involved during that time. However, before he did, Lisa destroyed all evidence linking her to any embezzlement (including hard copies of invoices) and ALL computerized accounting records. She destroyed this information in such a way that there was no way to recover any of it. Because of this, Jack was unable to prosecute Lisa or prove anything else.
Moral of this story (especially for small business owners):
• NEVER trust all of your bookkeeping to be done by just one person without periodically checking the work yourself. As a business owner, you have every right (as well as the responsibility) to know how your business is doing financially. You have the right to see all vendor invoices and to check those invoices for accuracy. Furthermore, you should be the person who authorizes all payments to vendors (or to anyone else), including payroll for employees.
• If your business carries any kind of inventory, you should perform an annual inventory count. (This is required for income tax purposes anyway.) When you purchase products, you should periodically spot check the products that arrive with the vendor invoices and other shipping documentation to verify that you are receiving everything that was ordered.
• If your company receives services of any kind (cell phone service, etc.), periodically look at the vendor invoices to see what services you are being billed for. Sometimes vendors will charge you for services not properly authorized by you.
• Bookkeeper theft is not always easy to catch, but will never be caught if the business owner or other company officials NEVER check the work of the bookkeeper — especially in small business settings. Small businesses do not always have the ability to segregate duties in the “accounting” function of the business, so almost all work is done by one or two people, with no way to separate certain functions to other employees.
IRS Wins 48-Month Suspension of a Lawyer for Failing to File His Own Tax Return and Late Filing
WASHINGTON — Massachusetts Tax Attorney Kevin Kilduff was barred from practicing before the Internal Revenue Service for 48 months for failing to file one federal tax return and for filing another five returns late.
“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,” said Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR).
The OPR had originally sought the 48-month suspension, alleging Kilduff’s conduct was willful and disreputable. OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants. Kilduff formerly worked for the IRS Office of Chief Counsel.
The Administrative Law Judge (ALJ) subsequently set the penalty at a 24-month suspension. Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.
Kilduff’s suspension is for a minimum of 48 months. OPR has sole discretion regarding his reinstatement to practice before the IRS. At the very least, Kilduff must file all federal returns and pay all taxes he is responsible for, or enter an acceptable installment agreement or offer in compromise.
The complete decisions of the ALJ and the Appellate Authority are available on the OPR page on this web site.
“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,” said Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR).
The OPR had originally sought the 48-month suspension, alleging Kilduff’s conduct was willful and disreputable. OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants. Kilduff formerly worked for the IRS Office of Chief Counsel.
The Administrative Law Judge (ALJ) subsequently set the penalty at a 24-month suspension. Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.
Kilduff’s suspension is for a minimum of 48 months. OPR has sole discretion regarding his reinstatement to practice before the IRS. At the very least, Kilduff must file all federal returns and pay all taxes he is responsible for, or enter an acceptable installment agreement or offer in compromise.
The complete decisions of the ALJ and the Appellate Authority are available on the OPR page on this web site.
Ten Facts about Mortgage Debt Forgiveness
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).
1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Cracking Down on Independent Contractors
Federal and state regulators increasingly want to know whether companies' independent contractors are truly independent.
Employers may want to reexamine how they label their workers this year, as federal and state officials vow to clamp down on the misclassification of employees as independent contractors.
The Internal Revenue Service plans to look at the issue in audits of 6,000 randomly chosen companies during the next three years, starting this month. Meanwhile, proposals on Capitol Hill would give the Department of Labor more resources to ensure that companies classify their workers correctly. They would also change a safe harbor in the tax code that has enabled some companies to continue their practice of misclassifying workers.
Moreover, various states, including California, Massachusetts, New York, and Ohio, have recently enforced their rules on independent contractors by demanding changes and restitution from companies they found to have misidentified their workers as contractors. Earlier this year, for example, Massachusetts's Attorney General settled with four local dining-delivery companies that agreed to reclassify all their drivers as employees rather than independent contractors. Other states, including Maryland, have passed or proposed related new laws.
In a high-profile case, FedEx Ground has been the target of lawsuits, IRS auditors, and several states that believe the company has misclassified workers as contractors. Other companies that could be affected by a widespread crackdown include those that employ nurses, couriers, and construction workers.
To be sure, the issue has become more pressing because of the increased use of contract workers by companies wanting to introduce more flexibility in their labor costs in the wake of the downturn. That trend is expected to continue: CFOs plan to increase their temporary hiring over the next year, and most of them don't expect their companies' full-time staffs to return to prerecession levels before 2012, according to the latest Duke University/CFO Magazine Global Business Outlook Survey.
It's not surprising why, considering that independent contractors can be much cheaper than full-time workers. With contractors, who receive a 1099 tax form instead of a W-2, companies don't have to pony up for unemployment insurance, workers' compensation, health benefits, or Social Security taxes. Plus, companies aren't required to withhold income taxes for contractors. They are estimated to save as much as 30% in their payroll costs by going this route.
The price could rise, though, if officials make good on their word to uncover the presumed incidences of companies that fail to follow the rules, which vary by state and among federal agencies. The most recent federal estimates, from 2005, say that 7.4% of the workforce is considered to be independent contractors, but there is no solid, up-to-date data on how many of those workers are mislabeled. The IRS plans to get a better handle on contractor data by 2013, after concluding its round of random audits.
"Given the state of the economy, more people are trying to push the limits of when they can get away with classifying someone as an independent contractor, and probably a lot of people are pushing them too far," says Matthew Bainer, senior associate at Scott Cole & Associates, which represents workers with wage disputes.
Advocates of a crackdown believe it will benefit federal and state governments by bolstering their tax revenues and replenishing unemployment-insurance funds. The consequences of misclassifications vary by agency and the number of workers involved; companies may have to pay back taxes, unpaid wages, and penalties. In 2008 the IRS expected to collect almost $64 million in taxes and penalties from 844 companies that misclassified workers.
President Obama claims the government could collect $7 billion over 10 years by changing the incentives companies have for misclassifying workers, and by better enforcing the current rules through the hiring of 100 new employees in the Department of Labor. However, many misclassifications may come to light through a more indirect way: workers themselves. Contractors — some of whom do benefit from their status by having flexible schedules and the ability to work for various employers — may discover they should have been labeled differently when putting together their tax returns. These discoveries may have become more commonplace in recent years as workers have become more knowledgeable about their rights through the Internet, Bainer suggests.
Indeed, the renewed attention to the issue stems in part from the rise in complaints from workers who find themselves ineligible for unemployment insurance (independent contractors are also not offered the same protections as full-time employees subject to labor laws). As a workaround, some companies are putting aside unemployment insurance for workers they account for as independent contractors for federal tax purposes, says John Barrie, a partner at Bryan Cave.
That may be a mistake, however, if the IRS notices the discrepancy. Indeed, experts suggest that firms tread carefully when trying to save on labor costs and maintain consistency in their reporting. (The IRS provides a 20-factor test to help companies determine the status of their workers.) In general, the IRS believes the issue comes down to how much power a company exerts over a worker.
"If companies are controlling what the worker is doing and when it's getting done, they probably have an employee [instead of an independent contractor]," says Grafton "Cap" Willey, a managing director at CBIZ Tofias, which provides tax and consulting services. "Paying additional taxes is probably cheaper than getting in trouble."
Employers may want to reexamine how they label their workers this year, as federal and state officials vow to clamp down on the misclassification of employees as independent contractors.
The Internal Revenue Service plans to look at the issue in audits of 6,000 randomly chosen companies during the next three years, starting this month. Meanwhile, proposals on Capitol Hill would give the Department of Labor more resources to ensure that companies classify their workers correctly. They would also change a safe harbor in the tax code that has enabled some companies to continue their practice of misclassifying workers.
Moreover, various states, including California, Massachusetts, New York, and Ohio, have recently enforced their rules on independent contractors by demanding changes and restitution from companies they found to have misidentified their workers as contractors. Earlier this year, for example, Massachusetts's Attorney General settled with four local dining-delivery companies that agreed to reclassify all their drivers as employees rather than independent contractors. Other states, including Maryland, have passed or proposed related new laws.
In a high-profile case, FedEx Ground has been the target of lawsuits, IRS auditors, and several states that believe the company has misclassified workers as contractors. Other companies that could be affected by a widespread crackdown include those that employ nurses, couriers, and construction workers.
To be sure, the issue has become more pressing because of the increased use of contract workers by companies wanting to introduce more flexibility in their labor costs in the wake of the downturn. That trend is expected to continue: CFOs plan to increase their temporary hiring over the next year, and most of them don't expect their companies' full-time staffs to return to prerecession levels before 2012, according to the latest Duke University/CFO Magazine Global Business Outlook Survey.
It's not surprising why, considering that independent contractors can be much cheaper than full-time workers. With contractors, who receive a 1099 tax form instead of a W-2, companies don't have to pony up for unemployment insurance, workers' compensation, health benefits, or Social Security taxes. Plus, companies aren't required to withhold income taxes for contractors. They are estimated to save as much as 30% in their payroll costs by going this route.
The price could rise, though, if officials make good on their word to uncover the presumed incidences of companies that fail to follow the rules, which vary by state and among federal agencies. The most recent federal estimates, from 2005, say that 7.4% of the workforce is considered to be independent contractors, but there is no solid, up-to-date data on how many of those workers are mislabeled. The IRS plans to get a better handle on contractor data by 2013, after concluding its round of random audits.
"Given the state of the economy, more people are trying to push the limits of when they can get away with classifying someone as an independent contractor, and probably a lot of people are pushing them too far," says Matthew Bainer, senior associate at Scott Cole & Associates, which represents workers with wage disputes.
Advocates of a crackdown believe it will benefit federal and state governments by bolstering their tax revenues and replenishing unemployment-insurance funds. The consequences of misclassifications vary by agency and the number of workers involved; companies may have to pay back taxes, unpaid wages, and penalties. In 2008 the IRS expected to collect almost $64 million in taxes and penalties from 844 companies that misclassified workers.
President Obama claims the government could collect $7 billion over 10 years by changing the incentives companies have for misclassifying workers, and by better enforcing the current rules through the hiring of 100 new employees in the Department of Labor. However, many misclassifications may come to light through a more indirect way: workers themselves. Contractors — some of whom do benefit from their status by having flexible schedules and the ability to work for various employers — may discover they should have been labeled differently when putting together their tax returns. These discoveries may have become more commonplace in recent years as workers have become more knowledgeable about their rights through the Internet, Bainer suggests.
Indeed, the renewed attention to the issue stems in part from the rise in complaints from workers who find themselves ineligible for unemployment insurance (independent contractors are also not offered the same protections as full-time employees subject to labor laws). As a workaround, some companies are putting aside unemployment insurance for workers they account for as independent contractors for federal tax purposes, says John Barrie, a partner at Bryan Cave.
That may be a mistake, however, if the IRS notices the discrepancy. Indeed, experts suggest that firms tread carefully when trying to save on labor costs and maintain consistency in their reporting. (The IRS provides a 20-factor test to help companies determine the status of their workers.) In general, the IRS believes the issue comes down to how much power a company exerts over a worker.
"If companies are controlling what the worker is doing and when it's getting done, they probably have an employee [instead of an independent contractor]," says Grafton "Cap" Willey, a managing director at CBIZ Tofias, which provides tax and consulting services. "Paying additional taxes is probably cheaper than getting in trouble."
Wednesday, March 3, 2010
Is Your Business At Risk?
Many times, small businesses do not have the resources to properly segregate accounting duties to multiple employees. In many small businesses, there is only one person who handles all of the bookkeeping/accounting functions within the business. This person is most often an employee (assuming the business has more than one employee).
If your business has several employees, but only one person works in the accounting department, your business might be at risk for employee theft, embezzlement, fraud, and many other types of "white collar" crimes. This is especially true if the business owner NEVER looks at what the "bookkeeper" is doing. Even if an outside accounting firm is used (for financial statements and/or income tax preparation), the outside accountant might not catch possible problems, including employee theft, fraud, etc.
I had a client many years ago who had a bookkeeper that was robbing the company in many ways, and the owner was unaware of what was going on for almost 4 years. The business owner had noticed that annual sales were dropping each year over this four year period, but had no idea why. The business owner had no idea that he was paying for inventory that was never "received," or that he was paying for more cell phones than he actually was using in his business.
The bookkeeper that had been hired was actually purchasing products (from vendors), and had another employee in the company receive the products that were shipped, but the employee and the bookkeeper were recording approximately 60 percent of the products purchased into inventory. The rest were being set aside (and put into the employee's vehicle). The "stolen" products were then sold to the customers of the business for steeply discounted prices, thus causing these customers to no longer purchase from the business (but from the employee and bookkeeper).
The bookkeeper had a friend who worked for a competitor. The bookkeeper and her friend got together and decided to add a cell phone to the business cell phone account, with the friend getting the cell phone with the company (the bookkeeper worked for) paying the bill.
This went on for about 4 years before the owner of the business found out what was going on. The business owner happened to walk past the bookkeeper's desk one day and saw the cell phone bill on her desk. He glanced at the bill and saw that he was paying for 7 cell phones. He knew there should have only been 6 cell phones on the bill - one for himself, and one for each of his 5 service employees.
The business owner confronted the bookkeeper regarding the additional phone on the cell phone bill. She denied any knowledge about the additional phone charges. She told the business owner she would take care of it. She never intended to "take care of" the matter. After several months, the business owner asked to see the current cell phone bill. He saw that nothing had been done about it.
The business owner contacted the cell phone provider and asked that the additional phone be removed from the account. He was told he did not have the authority to remove the phone from the account. The business owner became furious at this, stating that he was the owner of the business, and that he was the only person in the business that had the authority to add or remove cell phones to the account.
The business owner, after further investigation, discovered that the bookkeeper had also been ordering more products than what had been received into inventory. (The business owner never took inventory, annually or otherwise.) The business owner attempted to get to the bottom of the fraud and theft.
In the end, the bookkeeper destroyed all evidence, including all computer records and hard copies of vendor invoices, etc., that could be used to prosecute her. She was fired, but the business owner was not able to prosecute her or the other employees that were working with her.
The business owner fired the bookkeeper, and all other employees. He hired new employees, but never hired an internal bookkeeper. He changed cell phone vendors. He contacted all of his vendors and asked to be put on COD terms, which meant that payment had to be made when products were purchased. He (the business owner) started making all purchases (although the employees would pick up the products). The business owner at least knew what was being purchased from that point forward.
The accountant could not be blamed because the bookkeeper was the only contact the accountant had at the company, outside of the business owner signing various tax returns (which were mailed to the business address). The business owner never really had any contact with the accountant except by phone at tax time.
What am I trying to say here? The business owner needs to keep an eye on what is going on in his/her business. It is very easy for employee theft and fraud to take place if no-one is paying attention.
If your business has several employees, but only one person works in the accounting department, your business might be at risk for employee theft, embezzlement, fraud, and many other types of "white collar" crimes. This is especially true if the business owner NEVER looks at what the "bookkeeper" is doing. Even if an outside accounting firm is used (for financial statements and/or income tax preparation), the outside accountant might not catch possible problems, including employee theft, fraud, etc.
I had a client many years ago who had a bookkeeper that was robbing the company in many ways, and the owner was unaware of what was going on for almost 4 years. The business owner had noticed that annual sales were dropping each year over this four year period, but had no idea why. The business owner had no idea that he was paying for inventory that was never "received," or that he was paying for more cell phones than he actually was using in his business.
The bookkeeper that had been hired was actually purchasing products (from vendors), and had another employee in the company receive the products that were shipped, but the employee and the bookkeeper were recording approximately 60 percent of the products purchased into inventory. The rest were being set aside (and put into the employee's vehicle). The "stolen" products were then sold to the customers of the business for steeply discounted prices, thus causing these customers to no longer purchase from the business (but from the employee and bookkeeper).
The bookkeeper had a friend who worked for a competitor. The bookkeeper and her friend got together and decided to add a cell phone to the business cell phone account, with the friend getting the cell phone with the company (the bookkeeper worked for) paying the bill.
This went on for about 4 years before the owner of the business found out what was going on. The business owner happened to walk past the bookkeeper's desk one day and saw the cell phone bill on her desk. He glanced at the bill and saw that he was paying for 7 cell phones. He knew there should have only been 6 cell phones on the bill - one for himself, and one for each of his 5 service employees.
The business owner confronted the bookkeeper regarding the additional phone on the cell phone bill. She denied any knowledge about the additional phone charges. She told the business owner she would take care of it. She never intended to "take care of" the matter. After several months, the business owner asked to see the current cell phone bill. He saw that nothing had been done about it.
The business owner contacted the cell phone provider and asked that the additional phone be removed from the account. He was told he did not have the authority to remove the phone from the account. The business owner became furious at this, stating that he was the owner of the business, and that he was the only person in the business that had the authority to add or remove cell phones to the account.
The business owner, after further investigation, discovered that the bookkeeper had also been ordering more products than what had been received into inventory. (The business owner never took inventory, annually or otherwise.) The business owner attempted to get to the bottom of the fraud and theft.
In the end, the bookkeeper destroyed all evidence, including all computer records and hard copies of vendor invoices, etc., that could be used to prosecute her. She was fired, but the business owner was not able to prosecute her or the other employees that were working with her.
The business owner fired the bookkeeper, and all other employees. He hired new employees, but never hired an internal bookkeeper. He changed cell phone vendors. He contacted all of his vendors and asked to be put on COD terms, which meant that payment had to be made when products were purchased. He (the business owner) started making all purchases (although the employees would pick up the products). The business owner at least knew what was being purchased from that point forward.
The accountant could not be blamed because the bookkeeper was the only contact the accountant had at the company, outside of the business owner signing various tax returns (which were mailed to the business address). The business owner never really had any contact with the accountant except by phone at tax time.
What am I trying to say here? The business owner needs to keep an eye on what is going on in his/her business. It is very easy for employee theft and fraud to take place if no-one is paying attention.
IRS Has $1.3 Billion for People Who Have Not Filed a 2006 Tax Return
Washington — Unclaimed refunds totaling more than $1.3 billion are awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, the Internal Revenue Service announced today. However, to collect the money, a return for 2006 must be filed with the IRS no later than Thursday, April 15, 2010.
The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.
Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury.
For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account.
The IRS reminds taxpayers seeking a 2006 refund that their checks will be held if they have not filed tax returns for 2007 or 2008. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.
In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.
Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 1-800-TAX-FORM (1-800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2006, 2007 or 2008 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by calling 1-800-829-1040, or by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS.
The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.
Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury.
For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account.
The IRS reminds taxpayers seeking a 2006 refund that their checks will be held if they have not filed tax returns for 2007 or 2008. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.
In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.
Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 1-800-TAX-FORM (1-800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2006, 2007 or 2008 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by calling 1-800-829-1040, or by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS.
Five Important Tax Credits
You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are five popular tax credits you should consider before filing your 2009 Federal Income Tax Return:
1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. 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.
2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
5. The Health Coverage Tax Credit pays up to 80% of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return. To determine if you’re qualified, or to find out how to receive the HCTC each month, visit IRS.gov and search for “HCTC.”
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).
1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. 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.
2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
5. The Health Coverage Tax Credit pays up to 80% of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return. To determine if you’re qualified, or to find out how to receive the HCTC each month, visit IRS.gov and search for “HCTC.”
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).
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