Vance Flouhouse & Garges, Charlotte, NC CPA, CPA Charlotte NC, Accountant Charlotte NC, Tax Preparer Charlotte NC

Your Right to Appeal

admin — Wed, 02 Dec 2009 22:13:14 +0000

Tax Tips
Your Right to Appeal
04/26/2006Are you in the middle of a disagreement with the IRS? One of the rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

IRS Publication 1, Your Rights as a Taxpayer, explains some of your most important taxpayer rights. During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal.

The Appeals Office, which is independent of the IRS office that proposed the disputed action, can work with taxpayers by correspondence, telephone, or informal conferences.

If you and the IRS appeals officer cannot reach agreement or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. Taxpayers can settle most differences without expensive and time-consuming court trials.

For more information on the appeals process, access the Appeals page on the IRS Web site at www.irs.gov/appeals. This website also contains an informative on-line video stream entitled, “Appeals—Today and Tomorrow.” Information is also available in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree; Pub. 556, Examination of Returns, Appeal Rights and Claims for Refunds; and Pub. 1660, Collection Appeal Rights (for Liens, Levies, and Seizures). To get copies of IRS publications, visit the IRS Web site at IRS.gov or call 1-800-TAX-FORM (1-800-829-3676).

Courtesy of IRS.gov
Tax Tip 2006-73, April 13, 2006

Energy Credit to Home Builders

admin — Wed, 02 Dec 2009 22:11:06 +0000

Tax Tips
Energy Credit to Home Builders
06/15/2006Under the Energy Policy Act of 2005, an eligible contractor who constructs a qualified new energy efficient home may qualify for a credit of up to $2,000. The credit is available for all new homes, including manufactured homes constructed in accordance with the Federal Manufactured Homes Construction and Safety Standards.

The home qualifies for the credit if:

1. It is located in the United States;
2. Its construction is substantially completed after August 8, 2005;
3. It meets the statutory energy saving requirements, and
4. It is acquired from the eligible contractor after December 31, 2005, and before January 1, 2008, for use as a residence.

In general, to meet the energy saving requirements, a home must be certified to provide a level of heating and cooling energy consumption that is at least 30 to 50 percent in the case of manufactured homes, and 50 percent for other homes below that of a comparable home constructed in accordance with the standards of the 2004 Supplement to the 2003 International Energy Conservation Code. It must also have building envelope component improvements providing a level of heating and cooling energy consumption that is at least 10 percent below that of a comparable home.

Manufactured homes can also qualify for the credit by meeting Energy Star standards. Site-built homes qualify for a $2,000 credit if they reduce energy consumption by 50 percent relative to the International Energy Conservation Code standard.

Manufactured homes qualify for a $1,000 or $2,000 credit depending on the level of energy savings achieved. The guidance provides information about the certification process that a builder must complete to qualify for the credit. The guidance also provides for a public list of software programs that may be used in calculating energy consumption for purposes of obtaining a certification.

Courtesy of IRS.gov
Tax Tip IR-2006-32, Feb 21, 2006

Deducting R&D Costs

admin — Wed, 02 Dec 2009 22:08:53 +0000

Tax Tips
Deducting R&D Costs
06/15/2006The expenditures of research and development (R&D) are generally capital expenses. However, you can choose to deduct these expenditures as current business expenses.

You may use one of the two following methods of accounting for R&D expenditures:

1. You may deduct your R&D expenditures in the tax year, in which you paid or incurred

2. You may amortize such expenditures over a period of not less than 60 months

You must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize.

You may claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. The R&D credit is a nonrefundable tax credit.

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Courtesy of IRS.gov

New Legislation for 2006

admin — Wed, 02 Dec 2009 22:06:32 +0000

Tax Tips
New Legislation for 2006
06/15/2006This year, several changes were made to the tax code. Here are a few of the highlights:

1. The Section 179 $100,000 deduction was extended through 2009.

2. The AMT exemption amount for married taxpayers increases to $62,550 and for unmarried individuals to $42,500 (instead of dropping to $45,000 and $33,750 respectively), and nonrefundable personal tax credits may be claimed to the full extent of an individual’s regular tax and AMT (instead of being limited to the excess of regular tax liability over tentative minimum tax).

3. Pre-Tax Increase Prevention Act law’s favorable tax rates for capital gains and qualified dividend income remain in place through 2010 (instead of sunsetting after 2008).

4. For tax years beginning after 2005, the age at which the kiddie tax applies is changed from under 14 to under 18 years of age. An exception to the tax would apply for a child who is married and files a joint return for the tax year, and for distributions from certain qualified disability trusts.

2007 Small Business Act

admin — Wed, 02 Dec 2009 22:04:17 +0000

Tax Tips
2007 Small Business Act
08/03/2007

Congress recently passed the 2007 Small Business Act. This new legislation contains an assortment of tax relief and revenue raising provisions. We would like to update you on the main tax provisions of the new law.
The tax relief provisions in the small business tax package include:
• Extend and liberalize the work opportunity tax credit. The credit is extended for 3.5 years with liberalized rules for hiring disabled veterans and workers in rural renewal counties.
• Extend and enhance Section 179 small business expensing. The Code Sec. 179 expensing limit is increased to $125,000 and the investment-based expensing phaseout is increased to $500,000, effective for tax years beginning after 2006, and the enhanced expensing provision is extended for another year (through 2010).
• Enhance the tip credit for certain small businesses. The Federal minimum wage level for purposes of calculating the tip credit is frozen, thereby allowing restaurants to continue claiming the full tip credit despite an increase in the Federal minimum wage.
• Waive individual and corporate AMT limitations on work opportunity tax credits and tip credits. Prior law limited a small business’ ability to claim the work opportunity tax credit and the tip credit by imposing a limitation that such credits could not be used to offset taxes that would be imposed under the alternative minimum tax (AMT). The new law provides a permanent waiver of the individual and corporate AMT limitations for the work opportunity tax credit and the tip credit.
• Liberalize several S corporation rules. The new law also contains several provisions beneficial to S corporations, including measures that:
o Redefine “passive investment income” for purposes of S corporation revocation rules to exclude gains from the sale or exchange of stock or securities as an item of passive investment income.
o Exclude restricted bank director stock from treatment as S corporation stock.
o Revise the tax treatment of sales of stock of wholly-owned subsidiaries of S corporations.
o Eliminate pre-1983 earnings and profits arising during an S corporation year, regardless of whether the corporation was an S corporation in its first taxable year beginning after December 31, 1996.
o Permit an electing small business trust (ESBT) to deduct interest expense it incurs when it borrows funds to purchase S corporation stock.
The 2007 Small Business Act pays for the above benefits by:
• Raising the kiddie tax age from under-18 to under-19 (under-24 if a student). Children who are in this category and have unearned income in excess of $1,700 will have this income taxed at their parents’ tax rate.
• Extending—from 18 to 36 months—the period in which IRS must notify a taxpayer of the taxpayer’s liability with respect to a tax return before IRS must suspend the accrual of interest and penalties relating to that liability.
• Eliminating the requirement that IRS hold a collection due process hearing before issuing a levy on delinquent employment taxes.
• Expanding preparer penalties to all types of tax returns (e.g., employment, excise, exempt orgs., estate and gift tax) and increasing the penalty amounts.
• Creating a new penalty on claims for refund that are filed without any reasonable basis.
• Increasing the penalty for bad checks and money orders.

Also, the IRS has posted several warnings in recent weeks on its website about different variations of tax scam e-mails. Please remember that as of today, the IRS and the NC Department of Revenue do not contact taxpayers via e-mail. Never click on a link in an e-mail unless you know the sender and never provide personal information that is solicited from an e-mail or a telephone call not initiated by you. Feel free to contact us if you receive something about your taxes and you question its validity. We value our relationship with you and do not want to see you fall victim to such scams. Please keep in mind that we have described only the highlights of the most important changes in the new law. Give us a call at your earliest convenience if you would like to discuss any of this in more detail.

2007 401(k), Simple IRA & Cafeteria Plan Deduction Rules

admin — Wed, 02 Dec 2009 22:00:44 +0000

Tax Tips
2007 401(k), Simple IRA & Cafeteria Plan Deduction Rules
08/06/2007

2007 401K, Simple IRA Plans & Cafeteria Plan Deductions

401K & Simple IRA Plan Deductions:

Federal Withholdings – Exempt

Social Security & Medicare – Taxable

FUTA – Taxable, .8% on the first $7,000.00 of Wages

NC State Withholdings – Exempt (Follows Federal Rules)

NC SUTA (2007 Taxable Base is $17,800.00) – Taxable

Cafeteria (Section 125) Plan Deductions:

Federal Withholdings – Exempt

Social Security & Medicare – Exempt

FUTA – Exempt

NC State Withholdings – Exempt (Follows Federal Rules)

NC SUTA (2007 Taxable Base is $17,800.00) – Exempt

2007 Wage Limit for Soc Sec is $97,500.00 @ 6.2%

There is no limit for Medicare which is taxed @ 1.45%

Year-end tax-saving strategies for those with appreciated capital assets

admin — Wed, 02 Dec 2009 21:42:06 +0000

Tax Tips
Year-end tax-saving strategies for those with appreciated capital assets
09/13/2007

Two important tax changes going into effect next year raise capital gains tax planning opportunities for many taxpayers. The first is the zero percent tax rate on capital gains that will apply to taxpayers in the two lowest tax brackets. The second is a broadened kiddie tax that will reach more children than ever before. This Practice Alert takes a look at the year-end planning implications of these two changes.

Zero capital gains rate coming for some. A noncorporate taxpayer’s net capital gain (but not collectibles gain, section 1202 gain or unrecaptured section 1250 gain) is taxed at a maximum rate of 15%. However, if the adjusted net capital gain would otherwise be taxed at a rate below 25% if it were ordinary income, it is taxed at a 5% rate this year, but will be subject to a zero percent rate for 2008 through 2010. (Code Sec. 1(h)(1)(B), Code Sec. 1(h)(1)(C)) (Note that qualified dividend income also is taxed at the 15%/5% rate this year and 15%/0% rate next year.)

Kiddie tax changes. A child subject to the kiddie tax pays tax at his or her parents’ highest marginal rate on the child’s unearned income over $1,700 (for 2007) if that tax is higher than the tax the child would otherwise pay on it. (Code Sec. 1(g) ) For 2007, a child is subject to the kiddie if he or she has not attained age 18 before the close of the tax year; either parent of the child is alive at the end of the tax year; and the child does not file a joint return for the tax year. (Code Sec. 1(g)(2)(A))

Effectively beginning in 2008, under the Small Business and Work Opportunity Tax Act signed into law on May 25, 2007, the kiddie tax rules also apply where:

the child turns age 18, or turns age 19-23 if a full-time student, before the close of the tax year;
the child’s earned income for the tax year doesn’t exceed one-half of his or her support;
the child has more than the inflation-adjusted prescribed amount of unearned income (projected to be $1,800 after an inflation adjustment);
the child has at least one living parent at the close of the tax year; and
the child doesn’t file a joint return for the tax year. (Code Sec. 1(g)(2)(A))
Year-end tax saving strategy #1. A taxpayer whose top dollars won’t be taxed at more than 15% this year or next, and who is considering the sale of appreciated capital assets before year end, should instead defer the sale until next year. By doing this, the taxpayer could end up paying zero tax on his gain instead of paying 5% if he sold this year. This should be done only if (1) deferring the sale is not likely to result in a reduced sales price, and (2) the taxpayer is not likely to be subject to the kiddie tax next year.

Year-end tax-saving strategy #2. Higher-bracket taxpayers should consider making year-end gifts of appreciated capital assets to low-bracket family members, who can then sell the assets next year and achieve an overall 15% tax savings for the family.

RIA illustration : The Smiths will be in the 28% bracket this year and next year. Jack, their 22-year-old son, has finished college and needs cash to start a business. The Smiths’ assets include stock they bought for $5,000 and which is now worth $20,000. If the Smiths sell the stock this year to give Jack the cash he needs, they’d pay a tax of $2,250. If they give him the stock, and he sells it next year for $20,000, the entire $15,000 of built-in gain will be tax-free (assuming Jack’s top dollars won’t be taxed at more than 15%). If they haven’t made other gifts to Jack during 2007, their gift of stock also will be gift-tax-free. That’s because the first $12,000 of gifts ($24,000 for married couples who split gifts) made by a donor to each donee in 2007 is excluded from the amount of the donor’s taxable gifts.

Year-end tax-saving strategy #3. Before the Small Business and Work Opportunity Tax Act was passed by Congress, some wealthy (and some moderate-income) parents gifted appreciated stock, mutual-fund shares, and other securities to their low-income, young-adult children. They assumed these children could (if no longer subject to the kiddie tax rules and if in one of the two lowest tax brackets) then sell the securities tax-free in 2008 through 2010. The new law change eliminates the opportunity to achieve this goal in many cases. In this situation, a child who has already received a gift of, say, stock and was planning to sell it next year to take advantage of the 0% capital gains rate, but who would be snared by the expanded kiddie tax, should sell it this year to take advantage of the 5% rate. If he waits till next year, he’ll pay a 15% tax on the gain. Note that this won’t work if the child also is subject to the kiddie tax this year.

Year-end tax saving strategy #4. Higher-bracket parents who haven’t done so yet should consider gifting appreciated capital assets to a low-bracket child who isn’t in kiddie tax territory this year but will be next year. The child can sell the assets before the end of 2007 and achieve a 10% tax savings for the family (he’ll pay a 5% tax instead of the 15% tax his parents would pay).

How to maximize tax benefits from child and dependent care expenses

admin — Wed, 02 Dec 2009 21:39:43 +0000

Tax Tips
How to maximize tax benefits from child and dependent care expenses
10/05/2007

Working parents with smaller children are keenly aware of what it costs to take care of them while they are at work, but they may not be aware of some tax strategies that can maximize the tax breaks available for such care. This Practice Alert presents some planning tips that can maximize your client’s tax benefits from child and dependent care expenses, with a focus on year-end planning possibilities.

Credit basics. A taxpayer may claim a tax credit for employment-related expenses he pays for the care of one or more qualifying individuals. The credit is 35% of employment-related expenses incurred by taxpayers with adjusted gross income (AGI) of $15,000 or less, and decreases by 1% for each $2,000 (or fraction of that amount) of AGI over $15,000, but not below 20%. (Code Sec. 21(a)(1), Code Sec. 21(a)(2), Reg. § 1.21-1(a))

Who is a qualifying individual? A qualifying individual is someone who:

is under the age of 13 and for whom the taxpayer is entitled to a dependency exemption as defined in Code Sec. 152(a)(1) (Code Sec. 21(b)(1)(A);
is the taxpayer’s dependent who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than half of the tax year. “Dependent” is defined in Code Sec. 152, determined without the gross income test for qualifying relatives, the rule that a joint return filer can’t be a dependent, and the rule that a dependent is ineligible to have dependents (Code Sec. 21(b)(1)(B)); or
is the taxpayer’s spouse, if the spouse is physically or mentally incapable of caring for himself or herself and has the same principal place of abode as the taxpayer for more than half of the tax year. (Code Sec. 21(b)(1)(C))
An individual may qualify as a qualifying individual for only part of the tax year. That’s because the status of an individual as a qualifying individual is determined on a daily basis. (Reg. § 1.21-1(c)(3))

Credit amounts. The maximum amount of employment-related expenses that may be used to compute the credit is $3,000 for expenses incurred for one qualifying individual, or $6,000, for expenses incurred for two or more qualifying individuals, at any time during the tax year. Creditable expenses cannot exceed earned income of the taxpayer or his spouse, whichever is lower (a special rule applies to spouses who are students or incapable of self-care).

An employer may offer employees the option to reduce salary by making excludible contributions up to $5,000 ($2,500 for married-filing separately taxpayers) to a flexible spending account (FSA) that is used to pay for employment-related expenses for the care of a child or dependent. ( Code Sec. 129(a)(2), Prop Reg § 1.125-1(a)(3)(F) [“Taxpayers may rely”]) Amounts excluded under this rule reduce, dollar-for-dollar, the applicable dollar limit on employment related expenses for purposes of the Code Sec. 21 credit. (Code Sec. 21(c); Reg. § 1.21-2(a)(3))

A taxpayer may take into account the total amount of employment-related expenses that don’t exceed the annual dollar limit although the amount of employment-related expenses attributable to one qualifying individual is disproportionate to the total employment-related expenses. For example, a taxpayer with expenses in 2007 of $4,000 for one qualifying individual and $1,500 for a second qualifying individual may take into account the full $5,500. (Reg. § 1.21-2(a)(4))

Qualifying expenses. Tuition for kindergarten and for schooling above the level of kindergarten does not qualify as employment-related expenses. (Reg. § 1.21-1(d)(5)) Day camp expenses may qualify as employment-related expenses but neither overnight camp nor summer school qualifies. (Reg. § 1.21-1(d)(7)) Household services may qualify as employment-related expenses if such services include work performed for the care of a qualifying individual. (Reg. § 1.21-1(c)(3))

RIA recommendation: The employment-related expenses for one individual often exceed $3,000. Where there is a second qualifying individual, and where it’s appropriate to do so, pay a small amount of expenses for him or her to increase the maximum amount of expenses allowed from $3,000 to $6,000.

RIA illustration 1: Robin has two daughters who are 3 years old and 12 years old, respectively. Her AGI is $65,000. For 2007, Robin will pay $7,000 of child care expenses for the 3-year old and thus far has no expenses for the 12-year old. Thus, she will be entitled to a federal child care credit of $600 ($3,000 × .20). However, if before year-end the 12-year-old is sick one day and Robin pays a child care provider $80 to watch that child while she is at work, she will wind up paying child care expenses for more than one child during 2007. As a result, her child care credit for 2007 will double from $600 to $1,200 (20% of the $6,000 maximum amount of employment-related expenses that may be used to compute the credit for two or more qualifying individuals). The tax savings could be even more if the taxpayer lives in a state that has a child and dependent care credit. For example, on our facts, if Robin lived in Delaware, this strategy would double her state child care credit from $300 to $600.

RIA observation: Under Reg. § 1.121-4(a), Robin can even pay one of her parents the $80 to watch the 12-year-old as long as the parent isn’t her dependent.

RIA caution: No credit can be claimed unless the taxpayer reports on his or her IRS Form 2441 (Child and Dependent Care Expenses) (or Schedule 2 of Form 1040A) the name, address and taxpayer identification number of the dependent care provider (but a tax-exempt provider doesn’t have to provide a TIN), and how much that provider was paid.

RIA observation: The expenses must be incurred before Robin’s daughter turns 13 years old. That’s because, beginning with the day that she turns 13, she will no longer be a qualifying individual for purposes of the credit.

RIA observation: Another set of circumstances where the above strategy can apply is where a spouse or a older-than-age-12 dependent has a temporary medical condition rendering him incapable of self-care.

RIA illustration 2: John and Mary are married and have one child for whom they have incurred $6,000 of child care expenses. Both are employed. Because they have paid expenses for only one qualifying individual, they are limited to $3,000 in computing their child and dependent care credit. In late November of 2007, John has surgery and can’t care for himself for three days. Mary has a choice of forgoing three days of work to care for John or hiring a housekeeper for $300. If Mary hires a housekeeper for $300 to care for John and Mary works during that period, the expenses qualify as employment-related expenses. As a result, John and Mary can claim child and dependent care expenses of $6,000 for purposes of the credit because there are two qualifying individuals for whom expenses have been paid.

RIA recommendation: A taxpayer who has already incurred more than $3,000/$6,000 for the tax year but doesn’t expect to do so next year should consider deferring payment for child care services until next year.

RIA illustration 3: Donna has 2 children for whom she will pay a total of $8,000 in child care expenses from January through November of 2007. She is scheduled to pay an additional $800 in the first week of Dec. 2007 for Dec. 2007 child care. In 2007, she anticipates her expenses will be reduced to $5,000 for the 2 children because one of those children will be entering public school. If Donna is permitted to postpone the payment for December child care until the first week of 2008, she can qualify for an additional $160 credit in 2008, and she will not reduce her 2007 credit.

RIA recommendation: There are instances where a single provider offers both a day camp and a school. Because expenses for day camp are deductible as employment-related expenses and expenses for school for kindergarten and above are not deductible, a taxpayer paying for both types of services should ask the provider to separately bill the amounts for the summer months as expenses for day camp.

RIA illustration : K operates a day care center that includes a kindergarten. During June, July and August, K’s facility becomes a camp that does not offer any classes. The expenses paid for June, July and August qualify as employment-related expenses.

RIA recommendation: Taxpayers eligible to participate in a dependent care FSA through their employment and are (a) in a high tax bracket and/or (b) have only one dependent and more than $3,000 of employment-related expenses, should use the FSA to pay for child care expenses. For these taxpayers, the FSA almost always provides greater federal tax savings than does the credit. Additionally, participating in a dependent care FSA can also save on FICA taxes, because excludable dependent care benefits are excluded from FICA wages.

RIA illustration 4: Anne files as head of household, has AGI of $70,000, and is in the 25% federal tax bracket. She has one dependent for whom she pays $5,000 in child care expenses. If she claims the credit, she can save a maximum of $600 in federal taxes ($3,000 × .20). If she had established an FSA, she could save $1,633 (($5,000 × .25 federal tax) + ($5,000 × 0765 for FICA). Thus, her federal savings of $1,633 from the FSA would be $1,033 more than what she would save by claiming a federal credit.

Source: Federal Taxes Weekly Alert (preview) 09/13/2007, Volume 53, No. 37

Congress passed a long-awaited AMT “patch” for 2007

admin — Wed, 02 Dec 2009 21:34:53 +0000

Tax Tips
Congress passed a long-awaited AMT “patch” for 2007
01/14/2008In the final days before it adjourned for 2007, Congress passed a long-awaited AMT “patch” for 2007. It also passed two other tax laws of wide interest. These laws provide mortgage debt forgiveness tax relief, other tax breaks and technical corrections, many of which are substantive. Tax changes also were enacted as part of the energy legislation and in a special measure to aid victims of the Virginia Tech shooting in 2007. Some of the changes in the late-2007 legislation directly affect business and corporations. The key changes in this area include:
… Partnership failure to file penalty increased. Under pre-Mortgage Relief Act law, any partnership required to file a return for any year, which failed to file on time (including extensions) or whose return failed to show the information required, was liable for a monthly penalty equal to $50 times the number of persons who were partners during any part of the tax year, for each month or fraction of a month for which the failure continued. However, the total penalty could not be imposed for more than five months. The Mortgage Relief Act extends the period for calculating the monthly failure-to-file-penalty for partnership returns from 5 to 12 months and increases the per-partner penalty amount from $50 to $85 per partner, effective for returns required to be filed after Dec. 20, 2007. Note also that under the Virginia Tech Victim’s Relief Act, for tax years beginning in 2008 only, the dollar amount per partner is increased by $1. Thus, for tax years beginning in 2008, the per-partner penalty for failure to file a partnership return is $86.

… New failure to file penalty for S corporation returns. Under pre-Mortgage Relief Act law, there was no penalty for failure to file an S corporation return. The Mortgage Relief Act imposes a monthly penalty for any failure to timely file an S corporation return or any failure to provide the information required to be shown on such a return, effective for returns required to be filed after Dec. 20, 2007. The penalty, assessed against the S corporation, is $85 times the number of shareholders in the S corporation during any part of the tax year for which the return was required, for each month (or a fraction of a month) during which the failure continues, up to a maximum of 12 months.
FUTA surtax extended through 2008. The Federal Unemployment Tax Act (FUTA) imposes a 6.2% gross tax rate on the first $7,000 paid annually by covered employers to each employee, consisting of a permanent tax rate of 6%, and a temporary surtax rate of 0.2%. Under pre-Energy Independence and Security Act of 2007 law, the temporary surtax only applied through the end of 2007. Under the Energy Act, the temporary surtax rate (which amounts to $14 per worker) is extended through Dec. 31, 2008. Thus, the FUTA rate remains at 6.2% through the end of 2008.
… Lengthened amortization period for certain expenses of large integrated oil companies. Under pre-Energy Act law, major integrated oil companies (certain companies with gross receipts of more than $1 billion for their last tax year ending in 2005) were required to amortize their geological and geophysical expenditures (G&G costs) over five years (instead of the 24 month period that applies for other taxpayers). Effective for amounts paid or incurred after Dec. 19, 2007, major integrated oil companies must amortize their geological and geophysical expenditures over seven years.

… Help to expand housing options for college students with children. A change in the Mortgage Forgiveness Debt Relief Act of 2007 clarifies that certain full-time students who are single parents and their children are permitted to live in housing units eligible for the low-income housing tax credit if their children are not dependents of another individual other than a parent of such children. In general, this change applies to housing credit amounts allocated before, on or after Dec. 20, 2007, and to buildings placed in service before, on or after Dec. 20, 2007.

… Flexibility to help co-op tenant/owners deduct real estate taxes and mortgage insurance. The Mortgage Forgiveness Debt Relief Act of 2007 modifies the requirements for qualifying for the special rules available to cooperative housing corporations. Under pre-Act law, a cooperative housing corporation was required to meet several requirements, including a requirement that 80% or more of the cooperative housing corporation’s income be earned from the corporation’s tenant-stockholders. The Act provides two alternatives to this 80% rule (i.e., one based on square footage and another based on cooperative expenditures). These two alternatives, which take effect for tax years ending after Dec. 20, 2007, will make it easier to qualify as a cooperative housing corporation.
In addition, other business and corporate changes in the late-’07 tax legislation:
• Clarify the look-through rule for related CFCs.
• Revise the rules for a shareholder basis reduction on account of contributions of appreciated property by S corporations.
• Modify the Code Sec. 355 active business definition.
• Clarify the tax-exempt use loss rules.
Please keep in mind that this is only a summary of these new provisions. If you would like more details about these or any other aspect of the new law, please do not hesitate to call us at Vance Flouhouse & Garges, PLLC. 704-369-7200

Rebate Scam Warning

admin — Wed, 02 Dec 2009 21:32:19 +0000

Tax Tips
REBATE SCAM WARNING!!
02/04/2008

IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting

IR-2008-11, Jan. 30, 2008

WASHINGTON — The Internal Revenue Service today warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure. The IRS expects such scams to continue through the end of tax return filing season and beyond.

The IRS cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS would provide advance payments, known informally as rebates to many Americans, a scam which uses the proposed rebates as bait has already cropped up.

The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.

Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scamsters to act quickly and cover their tracks before the victim becomes aware of the theft.

People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records. In the meantime, victims may lose job opportunities, may be refused loans, education, housing or cars, or even get arrested for crimes they didn’t commit.

The most recent scams brought to IRS attention are described below.

Rebate Phone Call
At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early. The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.

This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments. Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.

Refund e-Mail
The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form. The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.

In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.

This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.

Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on this Web site, IRS.gov. The only official IRS Web site is located here at www.irs.gov.

Audit e-Mail
Another new scam brought to IRS attention contains features not seen before by the IRS. Using a technique calculated to get almost anyone’s attention, the e-mail notifies the recipient that his or her tax return will be audited. This is the first scam of which the IRS is aware that uses this to get the victim to respond.

Unusual for a scam e-mail, it may contain a salutation in the body addressed to the specific recipient by name. Most scam e-mails seen by the IRS are sent using the same technique used by spammers, in which hundreds of thousands of messages are sent to potential victims based on Internet address. Because of the volume, the typical scam e-mail is not personalized.

This e-mail instructs the recipient to click on links to complete forms with personal and account information, which the scammers will use to commit identity theft.

This e-mail is a phony. The IRS does not send unsolicited, tax-account related e-mails to taxpayers.

Changes to Tax Law e-Mail
This bogus e-mail is addressed to businesses, accountants and “Treasury” managers. It instructs them to download information on tax law changes by clicking on a series of links to publications on businesses, estate taxes, excise taxes, exempt organizations and IRAs and other retirement plans. The IRS believes that clicking on a link downloads malware onto the recipient’s computer. Malware is malicious code that can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scamster. There are other types of malware, as well.

The urls contained in the link are not legitimate IRS Web addresses. All IRS.gov Web page addresses begin with http://www.irs.gov/.

Paper Check Phone Call
In a current telephone scam, a caller claims to be an IRS employee who is calling because the IRS sent a check to the individual being called. The caller states that because the check has not been cashed, the IRS wants to verify the individual’s bank account number. The caller may have a foreign accent.

In reality, the IRS leaves it entirely up to the individual to choose to cash or not cash a paper check. The IRS has no business need to know, and does not ask for, bank account or similar information, except when taxpayers indicate on their tax return that they are opting for the direct electronic deposit of their refund. In that case, however, it is the individual’s responsibility to provide the IRS with the correct bank routing and account numbers on the tax return; the IRS does not contact taxpayers to verify the information.

What to Do
Anyone wishing to access the IRS Web site should initiate contact by typing the IRS.gov address into their Internet address window, rather than clicking on a link in an e-mail or opening an attachment.

Those who have received a questionable e-mail claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such e-mails, phishing@irs.gov, using instructions contained in an article titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Following the instructions will help the IRS track the suspicious e-mail to its origins and shut down the scam. Find the article by visiting IRS.gov and entering the words “suspicious e-mails” into the search box in the upper right corner of the front page.

Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS of the scam.

The IRS has issued previous warnings on scams that use the IRS to lure victims into believing the scam is legitimate. More information on identity theft, phishing and telephone scams using the IRS name, logo or spoofed (copied) Web site is available on this Web site. Enter the terms “phishing,” “identity theft” or “e-mail scams” into the search box in the upper right corner of the front page.