Our Taxing Times

New Form I-9

Attention employers! The U.S. Citizenship and Immigration Service (USCIS) has issued a new form I-9, Employment Eligibility Verification. This is the form which you are required to have all new (and rehired) employees complete when they are hired to verify they are eligible to work in the U.S.

The new I-9 (revision date 3/8/13) expands the actual form from one to two pages but really doesn’t ask for too much more information. There is more space to list which documents have been used for verification and the area where the employee verifies that they are eligible for U.S. employment has been expanded slightly. The instructions have also been expanded.

Employers have been required since 1986 to have all employees complete an I-9 and keep the form in their files. This has not changed. Also, employers are not required to have current employees with an I-9 on file fill out the new form. The new form is only required for new and re-hired employees. The form needs to be completed by the first day the employee works but it shouldn’t be done before the employee accepts the job.

Employers must keep the completed forms on file and they can be inspected by several Federal departments. Employers who don’t maintain the files can be subject to civil penalties and possible criminal penalties.

The new I-9 can be downloaded on the USCIS website.

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Bad Year

The IRS is having a bad year.

 

No, they are having a terrible, horrible, no good, very bad year. (Nod to Judith Viorst)

• Congress put off dealing with the tax changes until after the first of 2013. As a result, the IRS had to delay the start of the tax season to implement those changes. It took until the middle of February to get everything working.
• Tax preparer regulation gets thrown a loop by the Loving Decision. And the IRS didn’t get a stay on the injunction. Now they’re in the appeal process.
• H&R Block’s issues with the Education Credit Form 8863 forced the IRS to clean up after them to get taxpayers their refunds faster.
• “Where’s My Refund” got bogged down from all the use and taxpayers had to be asked to only try once a day.
• Modernized e-file needed maintenance a few days before the end of the tax season.
• There were delays e-filing on April 15^th because of the volume of returns filed.
• Long delays on phone help lines due to budget cutbacks.
• 5 to 7 furlough days without pay.
• No leadership. Shulman gave notice on Oct 21, 2012 but no replacement was named until last week.
• The tax exempt mess has already cost several people their jobs and promises to continue for a while.

I’m sure I missed something. But the stress level at the IRS must be off the meter right now. Hang in there everyone.  Hopefully, someone else will mess up and take over the media spotlight away from you and change your luck/karma.

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You Need the Numbers Before You Do the Return

Dear Rep. Bill Foster (D-IL) do you know what a CP2000 is? May I respectfully suggest that you check this notice out and then go back to the bill you just submitted to Congress and make some revisions or trash the bill completely?

A CP2000 is a notice the IRS sends to taxpayers concerning differences between the information records the IRS has received and what the taxpayer has reported on their tax return. For example, Joe wins a jackpot at a local casino in January of 2013 and is given the W-2G for the win at that time. But by the time Joe does his 2013 return in 2014, he’s forgotten all about it and doesn’t include the winnings on his tax return. About a year later, Joe will get a CP2000 from the IRS pointing out that he left this income off his return and please send them some more money.

Why should Rep. Foster check out this notice and the time it takes for it to be issued? Because he and co-sponsors Rep Mike Quigley (D-IL) and Jared Huffman (D-CA)  have introduced a tax reform bill; the Autofill Act of 2013 (H.R. 1532). The idea is that taxpayers will download from a secure IRS website a tax form with the income information already filled in for them. The income reported on W-2s, W-2Gs and 1099s. The taxpayer can accept the return as is, modify the information or do a return from scratch. It’s the Representative’s solution to the complex tax code and the cost of compliance.

Autofill is one of those ideas that sounds good but will be a bear to implement. Part of the problem with this particular bill is the time frame that the sponsors outline for implementation. Basically they want it to start with the 2013 returns that will be filed in 2014. That is a short time to make those kinds of changes to the tax system. And it doesn’t give anyone much time to get the word out to the public about the program and their right to make changes to the Autofill return. Most troubling to me is the section that requires the IRS to have the downloadable forms ready to go by February 15^th.  That is at least 13 days earlier than W-2, 1098, and 1099 forms have to be filed with Social Security and the IRS. In fact, if the information returns are filed electronically, employers and payers actually have until March 31^st. Then Social Security and the IRS need time to process the information. That’s why it takes so long to get CP2000 notices out. They can’t go out until the information is there. Under this bill, the downloadable returns could be incomplete or change as the issuers make corrections. Autofill won’t help if the correct numbers aren’t there.

As for Autofill reducing the costs of tax preparation, it might cost me clients with simple returns. But I can see more amended returns and compliance work due to information filed late or taxpayers wanting to make changes to the filled in return they filed.

Some kind of pre-filled out Federal return might be an option to help taxpayers. However, there are lots of issues which would have to be worked through before it could go live. The biggest issue would be filing deadlines for the information returns the IRS would need. It might mean that April 15^th would have to become June 15^th to give time for the info to be available and returns filed. The Autofill Act of 2013 needs to go back to the drawing board and take a serious look at how the current system works and what changes will have to be made to get an Autofill return program to be a benefit for taxpayers.

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Don't Lose Your 2009 Refund

Did you file your 2009 tax return yet?

If you didn’t, you might want to dig out the papers and file that return in the next month. On April 15, 2013 the window to file a 2009 return and receive a refund closes. After that, you will lose the refund.

The IRS estimates that there are 984,400 taxpayers who have a 2009 refund coming. That totals to $917 million. The IRS also estimated that half of those taxpayers would be getting $500 or more in a refund. If it’s not claimed by April 15^th, the remaining 2009 refunds go into the Treasury.

And while you’re filing your 2009 return, it might be a good time to catch up any other unfiled returns too.

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Refunds into Savings Bonds

You know that you’re getting a Federal refund. What should you do with that money? Honestly, many taxpayers have that money spent before they get their return prepared. But if you’re planning to put all or part of that refund into savings, you might consider buying a US Savings Bond.

Most taxpayers know that they have the option to have their tax refunds directly deposited into a personal account. But most people don’t know that the refund can be deposited into more than one account. Form 8888 allows the taxpayer to split their refund in up to three accounts. These can be a checking, savings, IRA, or brokerage account. On top of that, you can also buy a savings bond or two.

Form 8888 allows you to purchase Series I bonds for yourself or as a gift. Use Part II to buy paper bonds. Just fill in the amount you want the bond to be. If you’re buying the bond as a gift, you need to fill in the recipient’s and the co-owner/beneficiaries’ name along with the amount of the bond (line 5a or 6a). If the bond is for you, just fill in the bond amount on line 4. The paper bonds will be mailed to the bond owner.

You can also use part I of Form 8888 to add money to your TreasuryDirect account and allocate the money to buy a gift bond or buy a bond for yourself.

Using Form 8888 to buy savings bonds is an easy way to save part of your refund for the future.

 Information about Treasury Direct.

Using your Refund for Savings Bond.

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Disclosing Prisoner Returns

The American Taxpayer Relief Act of 2012 (ATRA) is not all about tax rates and extenders. I covered the highlights yesterday. But as I read the bill one section popped out at me; Section 209 – Improve and Make Permanent the Provision Authorizing the Internal Revenue Service to Disclose Certain Return and Return Information to Certain Prison Officials.

I’ll admit I missed the Temporary authorization but I’m glad to see Congress including this provision with the fiscal cliff bill.

Tax return fraud has become a big business in prison. It’s not surprising considering the number of tax credits which can be refunded to taxpayers. By the end of June 2010, 1295 prisoners had filed for the First Time Homebuyer’s Credit receiving refunds totaling over $9 million. This included over 240 inmates on death row.

Part of the problem in combating these fraudulent returns is the IRS confidentiality rules. This section of ATRA will allow the IRS to release prisoner returns to state and federal prison officials when tax fraud is suspected. This will allow the prison to investigate and take administrative action. This act applies to government run prisons and contractor run prisons.

Hopefully, this will help the IRS and prison officials reduce the number of fraudulent returns coming from the prison system.

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American Taxpayer Relief Act of 2012

Well color me surprised!

After reading everything that was coming out of Washington, DC about the fiscal cliff negotiations yesterday, I had very little faith that the House would pass the bill. But, to quote my Mom, bless their pointy little heads, pass it they did. Okay, so what did we get?

First and my favorite is the Alternative Minimum Tax fix. Not patch but fix. AMT isn’t going away but the exemption level will continue at the higher levels of the last few years and will be indexed for inflation.

Higher income taxpayers will be paying more in taxes. First, the highest tax rates will be going to 39.5% for taxpayers with $400,000 ($450,000 for married filing jointly) or more in taxable income. This is up from a 35% top rate. These taxpayers will also be paying higher tax rate on capital gains and qualified dividends. They will pay 20% as compared to 15% for everyone else. Finally, the phase outs for the itemized deduction and personal exemptions are back. Taxpayers with income more than $300,000 and $250,000, respectively, will start losing those deductions.

Lower and middle income taxpayers will still have the Earned Income Credit, Child Tax Credit and American Opportunity Tax Credit. These remain at the same level as 2011 but the extension is only for 5 years.

Some deductions which expired 12/31/2011 have been extended through 12/31/2013. These include the $250 deduction for teacher classroom supplies, the Higher Education Tuition and Fees deduction, the mortgage insurance premium deductibility and the charitable contribution from an IRA.

The Estate Tax is now set at 40% for estates over $5 million and it’s indexed for inflation.

There are a bunch of business credits and deductions which get another year. More about those in another post.

Besides the tax provisions, there were several other provisions included in ATRA. First is the extension of unemployment benefits for another year. The cuts in Medicare reimbursement for doctors are also delayed for a year. The farm bill fix is only for 9 months to avert the “milk cliff.” Finally, Congress will not get their 0.5% cost of living increase like other Federal employees. It’s been re-frozen.

What didn’t get into ATRA? The 2% cut in employee’s FICA contributions is gone for 2013. It’s back to 6.2%. Congress also didn’t deal with spending cuts or the debt ceiling and sequestration is delayed for 2 months.

That’s ATRA in a nutshell. As we put it into practice, I’m sure we’ll be hearing, and writing, more about it. But at least tax season can proceed even if some returns will have to be delayed while the IRS re-tools their systems for the last minute changes.

ATRA

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Tax Season Delay

New Year’s Day has long been a work day for me. All the procrastination has ended and I have to get everything printed, mailed, collated and cleaned for tax season. But this year, we have the fiscal cliff. Still! And that will impact the tax season.
Right now we have a tax (and other things) bill in the House, The American Taxpayer Relief Act of 2012 (ATRA). The Senate stayed up until the wee hours of the morning to pass their bill. But the House doesn’t like the bill because of  the lack of spending cuts and there is a good chance that they will not pass the bill as it stands. They could make changes and punt it to the Senate. That happens all the time. But there’s a catch right now.
The 112th Congress ends at noon on Thursday January 3, 2013. That’s the law. And when the 112th Congress ends, the American Taxpayer Relief Act of 2012 dies. The 113rd Congress will have to start all over on tax relief once they’re sworn in.
On November 13th, the acting IRS Commission sent a letter to Congress stressing the importance of dealing with the AMT patch and the tax extenders ASAP so that the 2012 return filing would not be delayed. While most of the attention was on the 2 month or more month delay which would be caused by the failure to pass an AMT patch, Mr. Miller also pointed out in that letter that the tax extenders could cause a delay. He pointed to 2011 when the 2010 returns for 9 million taxpayers were delayed for a month so that the IRS computers and forms could be changed to account for last minute legislation. So even if the House passes the bill before them now, a large portion of taxpayers will have to wait to file.
The prospects are worse if the House doesn’t pass this bill by noon on Thursday. The new Congress will have to start the legislative process over. The IRS can’t wait long to see if they can quickly work out a deal. They will have to start the re-programing process and we could see an across the board filing delay until at least March. (A frightening thought. ATRA doesn’t pass the house and dies at noon Thursday. Then IRS starts making the changes needed by the loss of extenders and no AMT patch. The after a few weeks work, Congress fixes those issues retroactively and now the IRS has to start the update process all over again. And delaying filing even later. Like I said, frightening!)
The best bet for most taxpayers is for the House to pass ATRA and work on the needed spending cuts next year. But what will happen? I don’t know about the law but I do know that at least some taxpayers won’t be able to file until later than usual no matter what happens to ATRA in the next day and a half.

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Up To The House

As I’m sure you’ve heard by now, the Senate passed a tax bill very early this morning. It wasn’t exactly what anyone wants (it’s a compromise after all) but it will work. The problem is that it now has to go to the House.

I’m not going to list a bunch of provisions since I’m sure that the House will try to make changes to the bill. The first step is to the House Conference Committee at 1pm EST. They’ll review the Senate bill and decide what they don’t like and want to change. I don’t expect them to fast track the bill so we’ll be talking about the fiscal cliff for a few more days. It would be nice to have a vote today but don’t expect one because there needs to be some posturing and face saving.

The question is if the members of the House can put their egos on hold and do what is best for taxpayers and compromise. If they don’t vote until tomorrow, they can tell their constituents they actually cut taxes and not increased them (Congressional Con). The longer they drag the fight on over this bill the more frustrated taxpayers will get. I’m sure that most House members will expect them to forget that frustration with just two years before the next elections but I don’t think that will happen this time.

The common sense approach would be to pass this bill and then go to work creating bills for the spending cuts, debt ceiling and tax reform issues. But this is the House and sometimes their common sense loses to their egos.

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AMT, the Gift You Don't Have to Wrap!

On the way into the office this morning, I thought on what I should write about today. Something about Christmas but what? Then it dawned on me, what I want for Christmas. What do I really want most?  An AMT patch. Too tax based for you? Nope! An AMT patch is a practical gift that will benefit not just me but millions of taxpayers, tax pros and the IRS.

The real problem is that this gift is that Santa can’t deliver it. An AMT patch has to come from Congress in the last few days of the year. Since the elections, we have been waiting for them to get together and extend the Bush tax cuts and patch AMT. Not tax reform but tax fix. But here it is, Christmas Eve, and still nothing. Extending the Bush tax cuts can be done next year without affecting taxpayers but the AMT patch can’t wait. The patch has already expired so for 2012 returns AMT returns to 2001 levels.

As I’ve (and every other tax writer and blogger has) mentioned before, AMT will raise taxes on taxpayers in the middle class. A quick estimate I did found that a couple with 2 children and $75,000 in income (nothing but their standard deduction and exemptions) will pay over $600 in AMT on their 2012 return. AMT could hit 28 million returns for taxpayers with income from $75,000 to $300,000. The average increase would be about $3700.

No AMT patch will also impact the IRS. They assumed that Congress would extend the patch, so the IRS computers were not re-programmed for the original AMT. With no patch, they will have to reprogram their computers for the lower exemptions. That includes changes in a variety of credits which will no longer be allowed to offset the tax. On December 19^th, Acting IRS Commission Steven Miller sent a letter to Congress reminding them of the problems no AMT patch will cause. He estimates that 80 to 100 million of the 150 million returns that will be filed will have to be checked for AMT. He states that this would cause a delay in all return filing until at least March 31, 2013. The IRS will have to re-program two sets of computers because they are still converting to Modernized e-File. While most returns will go MeF, the IRS needs to keep the Legacy system working as a backup. Remember last February and the backup the high volume of MeF returns caused? Can you imagine what could happen once filing is opened after an eleven week delay without well tested systems?

Stuck in the middle of this mess are the tax pros. We are the ones who will have to deal with clients who can’t file for refunds they need now.  We’ll have to explain why they’re refund is lower or gone due to AMT. And since we won’t be able to file returns, we won’t get paid. Tax Preparation is a seasonal business and for many of us, there is little cash left in January. Waiting until late March, could make for a long cold winter.

So Congress, how about it? Give us, taxpayers, tax pros and the IRS, the gift we really want this year; an AMT patch. You can do it. Pull it off the fiscal cliff bill and take care of this one little thing. You have plenty of time to argue about tax rates and budget cuts next year.

I’m not the only one asking Santa for an AMT patch.

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