Treatment of Homebuyer Credits for Innocent Spouse Claims

The IRS has released guidance regarding how it will treat homebuyer credits when reviewing and processing innocent spouse applications. There are three different scenarios—including ineligibility for the credit that was claimed—in which questions could arise in the context of an innocent spouse case.  

In PMTA 2011-36, the IRS release guidance regarding how it will treat homebuyer credits when reviewing and processing innocent spouse applications.  The IRS identified three different scenarios in which questions could arise in the context of an innocent spouse case.

1. Ineligibility for the homebuyer credit - credit was disallowed.
2. Jointly owned property. Generally, the deficiency would be allocated 50/50 between the spouses as if the spouses had filed using the Married Filling Separate filing status.
3. Property purchased by one spouse.

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IRS Provides Guidance on Disclosure of Tax Returns Filed by Identity Thieves

If you are a victim of identity theft wherein a fraudulent tax return was filed on your behalf, you may request a copy of the “false” return from the IRS and other information associated with the processing of the "false" return from the IRS as long as the disclosure does not impair federal tax administration.  However, the IRS will not disclose the identity of the thieft to the victim. 

The IRS is designing a new form Tax Information Authorization that may be used for this purpose.

Memorandum from the IRS:

http://www.irs.gov/pub/lanoa/pmta_2012-05.pdf

 

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Taxpayer Who Received Form 1099-C Did Not Have Cancellation of Indebtedness Income

In Stewart v. Comm’r, a taxpayer received Form 1099-C over ten years after defaulting on credit card debt. The Tax Court ruled that he did not have COI income that year, despite receiving the form.   

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Identity Theft Presents a Threat to Any Taxpayer

While I’ve not yet been the victim of identity theft, the possibility and the consequences are beginning to be imminent.

Identity theft can cause particular trouble when it’s done in connection with taxes.  The Treasury Inspector General for Tax Administration says that over 640,000 taxpayers were affected by identity theft in calendar year 2011, up from 270,500 in calendar year 2010. These cases threaten to overwhelm IRS resources, according to TIGTA, which noted that taxpayers whose identities are stolen receive confusing and conflicting instructions from the IRS and delays of sometimes longer than a year to resolve their tax problems. This year we had a number of cases that we couldn’t e-file because the Social Security Number had already been filed on a return.

Linda de Marlor, president of Rockville, Md.-based Tax-Masters and “Tax Lady” on C-Span recently stated the following, “We are working now on the case of a widow whose husband’s Social Security number was stolen a week after he died. The IRS has told us that she must now do paper filing for the next three years. It will take many months to sort out her federal and state refunds since the perpetrator has already filed false refund requests.”

In a report issued last month, TIGTA noted that identity theft was the number one consumer complaint last year to the Federal Trade Commission, and the most common form of reported identity theft involved government documents. The report noted that the IRS does not work identity theft cases in a timely manner and can take more than a year to resolve them. This should change, since the IRS agreed with a number of TIGTA recommendations and has made solving the problem a priority.

This is important, because you only find out about your taxes when it’s time to file your return. But if your refund has been stolen, other things could be happening as well. Given the doubling of tax-related identity theft from 2010 to 2011, it’s likely that one of us or someone close to us will soon be a victim. So don’t just trash your mail, shred it first. And consider signing up for one of the protection services. If the trend continues, it might also be a good investment to purchase some of their stock.

RECOMMENDATIONS:

One of the best and most inexpensive ways to deter identity theft besides shredding all documents, changing passwords frequently, and not accessing financial accounts on unsecured wi-fi servers is to have a security freeze placed at the three credit reporting agencies. Anyone attempting to open a new credit account (loan, mortgage, credit card, bank account, etc.) is told there is no information available for the social security number. You can apply for a temporary lift when it is necessary to apply for new credit which can be done by phone.

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IRS - Payment Options

Taxpayers that need to pay a tax bill have payment options:

• Phone - Pay by phone or online using a credit card, see Electronic Payment Options.
• Mail - Pay by check or money order made payable to the “United States Treasury.” Be sure to include your name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number. Complete and include Form 1040-V, Payment Voucher, when mailing your payment to the IRS.

If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS has options to help you keep interest and penalties to a minimum. File your return on time and pay as much as you can with the return, then:

• Request an installment agreement - Use the Online Payment Agreement application at http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTIwNDE2LjY4NzY4MDEmbWVzc2FnZWlkPU1EQi1QUkQtQlVMLTIwMTIwNDE2LjY4NzY4MDEmZGF0YWJhc2VpZD0xMDAxJnNlcmlhbD0xNjk1MjY4NiZlbWFpbGlkPWxzdWFyZXpAdGF4ZmxhLmNvbSZ1c2VyaWQ9bHN1YXJlekB0YXhmbGEuY29tJmZsPSZleHRyYT1NdWx0aXZhcmlhdGVJZD0mJiY=&&&131&&&http://www.irs.gov or by file Form 9465, Installment Agreement Request with your return. The IRS charges a user fee to set up your payment agreement. Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.
• Additional time to pay - You may request a short additional time to pay your tax in full using the Online Payment Agreement application on http://links.govdelivery.com/track?type=click&enid=ZWFzPTEmbWFpbGluZ2lkPTIwMTIwNDE2LjY4NzY4MDEmbWVzc2FnZWlkPU1EQi1QUkQtQlVMLTIwMTIwNDE2LjY4NzY4MDEmZGF0YWJhc2VpZD0xMDAxJnNlcmlhbD0xNjk1MjY4NiZlbWFpbGlkPWxzdWFyZXpAdGF4ZmxhLmNvbSZ1c2VyaWQ9bHN1YXJlekB0YXhmbGEuY29tJmZsPSZleHRyYT1NdWx0aXZhcmlhdGVJZD0mJiY=&&&132&&&http://www.irs.gov. Taxpayers who request and are granted an additional 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time. There is no fee for this short extension of time to pay.

Details on IRS Collection and Other Information
A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, http://www.irs.gov/.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations:

• Tax Tip: Ten Tips for Taxpayers Who Owe Money to the IRS

Links:

• Form 9465, Installment Agreement Request (PDF)
• Electronic Payment Options 
• Pagina principal de opciones de pago electronico 
• Online Payment Agreement Application 

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Energy-Efficient Home Improvements

The IRS would like you to get some credit for qualified home energy improvements this year. Perhaps you installed solar equipment or recently insulated your home? Here are two tax credits that may be available to you:
1. The Non-business Energy Property Credit  Homeowners who install energy-efficient improvements may qualify for this credit. The 2011 credit is 10 percent of the cost of qualified energy-efficient improvements, up to $500. Qualifying improvements includeadding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. You can also claim a credit including installation costs, for certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel. The credit has a lifetime limit of $500, of which only $200 may be used for windows. If you've claimed more than $500 of non-business energy property credits since 2005, you can not claim the credit for 2011. Qualifying improvements must have been placed into service in the taxpayer’s principal residence located in the United States before Jan. 1, 2012.

2. Residential Energy Efficient Property Credit This tax credit helps individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines. The credit, which runs through 2016, is 30 percent of the cost of qualified property. There is no cap on the amount of credit available, except for fuel cell property. Generally, you may include labor costs when figuring the credit and you can carry forward any unused portions of this credit. Qualifying equipment must have been installed on or in connection with your home located in the United States; fuel cell property qualifies only when installed on or in connection with your main home located in the United States.
Not all energy-efficient improvements qualify so be sure you have the manufacturer’s tax credit certification statement, which can usually be found on the manufacturer’s website or with the product packaging.

Also, note these are tax credits and not deductions, so they will generally reduce the amount of tax owed dollar for dollar.

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Standard Deduction vs. Itemizing: Seven Facts to Help You Choose

Each year, millions of taxpayers choose whether to take the standard deduction or to itemize their deductions. The following facts from the IRS can help you choose the method that gives you the lowest tax.

1. Qualifying expenses - Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.

2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are:

        Single     $5,800
        Married Filing Jointly   $11,600
        Head of Household   $8,500
        Married Filing Separately  $5,800
        Qualifying Widow(er)  $11,600

3. Some taxpayers have different standard deductions - The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you.

4. Limited itemized deductions - Your itemized deductions are no longer limited because of your adjusted gross income.

5. Married filing separately - When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

6. Some taxpayers are not eligible for the standard deduction - They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.


Links:

• Publication 17, Your Federal Income Tax (PDF)

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Three Tips for Reducing Tax-Time Stress

Tax preparation doesn't need to give you a headache. There are several ways to make it easier on yourself. The IRS offers six tips to help make your tax-filing experience a breeze this year.

1. Don’t procrastinate. Resist the temptation to put off your taxes until the very last minute. Rushing to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

2. Don’t panic if you can’t pay.  If you can’t pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the web-based Online Payment Agreement application available at http://www.irs.gov/. To find out more about this simple and convenient process, type “Online Payment Agreement” in the search box.You can also contact the IRS to discuss your payment options.

6. Request an extension of time to file – but pay on time.  If the deadline clock is ticking, you can get an automatic six-month extension through Oct. 15. However, this extension of time to file, which must be filed or postmarked by the April 17 deadline, does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline you may also be subject to an estimated tax penalty. .

Links:

• Online Payment Agreement
• Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return

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Tax Refunds May Be Applied to Offset Certain Debts

Past due financial obligations can affect your current federal tax refund. The Department of Treasury's Financial Management Service, which issues IRS tax refunds, can use part or all of your federal tax refund to satisfy certain unpaid debts.

Here are eight important facts the IRS wants you to know about tax refund offsets:

1. If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you.

2. You will receive a notice if an offset occurs. The notice will include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

3. If you believe you do not owe the debt or you are disputing the amount taken from your refund, you should contact the agency shown on the notice, not the IRS.

4. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. Form 8379 can be downloaded from the IRS website at www.irs.gov.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the IRS Service Center where you filed your original return.

7. The IRS will compute the injured spouse's share of the joint return. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

8. Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If you don't receive a notice, contact the Financial Management Service at 800-304-3107, Monday through Friday from 7:30 a.m. to 5 p.m. (Central Time).

Link:

Form 8379, Injured Spouse Allocation (PDF)

YouTube Videos:
Innocent Spouse Relief   English|Spanish|ASL

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IRS Offers Advice for Avoiding Tax Scams

The Internal Revenue Service is providing tips to help taxpayers avoid a new tax scam involving bogus college tax credits. The IRS issued a warning about the new scheme on Friday (see IRS Warns of New Emerging Tax Scam). Scammers have been targeting senior citizens, members of church groups, working families and other potential victims this tax season.

The schemes promise large tax refunds to people who have little or no income and normally don’t have a tax filing requirement. Tax preparers claim they can obtain for their victims a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

They falsely claim the tax refunds are available even if the victim went to school decades ago. In many cases, they are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money.

A variation of the scheme also falsely claims the college credit is available to compensate people for paying taxes on their groceries or taxes withheld on W-2s.

The schemes can be extremely costly for the victims. Promoters may charge them exorbitant upfront fees to file the tax claims and are often gone before victims discover that they have been scammed.

The IRS warned taxpayers to be careful of the scams because, regardless of who prepared their tax return, the taxpayer is legally responsible for the accuracy of their tax return and must repay any refunds received in error, plus any penalties and interest. They may even face criminal prosecution.

To avoid becoming ensnared in these schemes, the IRS said taxpayers should beware of any of the following:
•    Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
•    Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
•    Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
•    Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
•    Offers of free money with no documentation required.
•    Promises of refunds for “Low Income – No Documents Tax Returns.”
•    Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
•    Unsolicited offers to prepare a return and split the refund.
•    Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

In recent weeks, the IRS said it has identified and stopped an upswing in these bogus tax refund claims coming in from across the country. The IRS is actively investigating the sources of the scheme, and its promoters can be subject to criminal prosecution.

For more information on the true tax benefits related to education, visit the Tax Benefits for Education Information Center on the IRS’s Web site.

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