Sunday, August 1, 2010

August: Greetings from the IRS

If you have employees, you will be required to report the value of any health insurance you paid for the employee’s benefit beginning with 2011. Thus, you will need to be able to track these amounts beginning in January 2011.

The IRS Treasury Inspector has reported many compliance issues relating to the homebuyer tax credit. For instance, 256 taxpayers took a tax credit for homes at just five addresses. Several prisoners filed claims and had them approved (where their housing should have been a bit easier to verify!). Many amended returns filed questionable claims and the IRS did not devote resources to examining these returns. And if this wasn’t enough, more than 100 current IRS employees filed claims for the credit when they were not entitled to receive this credit. They are now under an internal investigation! And on a related matter: Congress has extended the time to claim the $8,000 first time homebuyer credit or $6,500 credit for longtime owners. This credit was set to expire on April 30 but now any contracts that were signed prior to April 30, 2010, will have until September 30, 2010, to actually close on the transaction. This extension was done to relieve the backlog of homes trying to close before the prior deadline (delays due to lenders and the federal government administering the lending programs). Congress did NOT extend the deadline of April 30 to contract for the purchase of the home.

The IRS offshore income probes just got a bit stronger, with Swiss bank UBS agreeing to turn over more than 4,000 accounts to the IRS where U.S. tax fraud is suspected. If you have an offshore account and did not report any income earned, you may want to talk to a tax professional about your options, as it does not appear that the IRS is slowing down in any way in the offshore tax fraud investigations.

The IRS has released filing data for the 2007 tax year (the most recent year available) and it showed that 4,535,623 US taxpayers reported an Adjusted Gross Income of at least $200,000. This represented about 3.2% of all individual tax returns filed. The actual number and percentage were record highs. Interestingly, more than 10,000 of these tax returns showed no US income tax liability. The IRS has attributed this to tax-exempt income being earned, along with numerous tax deductions (primarily Schedule A itemized deductions).

The IRS has announced that it will be doing more than 1,000,000 audits via mail this year, as it had a great deal of success with last year’s audits (i.e. they raised a lot of new revenue!). They are going to focus on unreimbursed employee business expenses, large charitable donations, earned income credit and advertising and car expenses for self-employed taxpayers.

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