June: Greetings From the IRS

The IRS will begin to examine employment tax returns beginning this fall and will start with a sample size of 4,500. These audits will focus on worker classification rules (employee vs. independent contractor), along with wages for S corporation shareholders, fringe benefits and executive compensation (“reasonable compensation”) issues.

If you are retired, you should have received a check from the IRS in May for $250. This check represents a retirees’ stimulus payment and applies to those on Social Security, Railroad Retirement, veterans pension or SSI.

The IRS has announced that it is reducing the penalties associated with offshore accounts and the failure to report all earnings in the past. These reductions apply only if you come forward before the IRS notifies you of a potential problem. In order to take advantage of this offer, you must contact the IRS and enter into an agreement with the IRS to adjust your taxes (as needed) for the previous six years. If you do this, the maximum penalty will be an accuracy-related penalty, along with a penalty of 20% of the highest amount in the foreign bank account during these years. The 20% amount may be reduced to 5% if the taxpayer did not open the account, there was no activity on the account and all taxes have been paid regarding the account. These penalties, while potentially high, are still much less than a potential civil (or criminal) fraud situation. See IRS Document 2009-10280.

The IRS has corrected a previous announcement that audits of millionaires are on the rise by stating that they actually decreased in 2008. Previously, the IRS reported that had a 9.25% increase in the number of audits for those taxpayers making more than $1 Million per year. It turns out that this was actually a decrease. Oops!

If you use your credit card to pay your IRS tax bill, you are now permitted to claim a tax deduction for the processing fee the IRS charges to accept the payment. It can be claimed as a miscellaneous itemized deduction on Schedule A (subject to the 2% floor for miscellaneous deductions).

The IRS has privately ruled that a like-kind exchange under Section 1031 of the Internal Revenue Code will fail if the intermediary goes bankrupt. Even though this was not the seller’s fault, if the exchange is not completed within 180 days due to the bankruptcy, the sale will be considered a taxable event and will not qualify for tax deferral.

Continuing with like-kind exchanges, the IRS has also decided that certain intangible assets, such as trademarks, trade names, and customer-based intangibles that can be separated from goodwill, will now qualify for tax deferral under Section 1031.

The IRS has provided updated depreciation and leasing tables for 2009 (Revenue Procedure 2009-24). Any leased vehicle worth in excess of $18,500 will be subject to a “lease inclusion” amount that must be added back into taxable income. These amounts attempt to provide a way to equalize the tax advantages between leasing and purchasing a vehicle.

Finally, the IRS is now reviewing many refund claims from taxpayers claiming the first-time homebuyers credit, as nearly 10% of those claiming this credit have been determined to be not eligible.