In 2011, tax preparers who anticipated filing 100 or more forms 1040, 1040A, 1040EZ and 1041 during the year were required to submit returns electronically.  Starting January 1st 2012, the number is lowered to 11 returns.  This rule applies to both individuals and firms.  Thus even if a member of a firm prepares fewer than 11 returns individually, the rule still applies as long as the firm prepares more than 11 returns.  Obviously that’s going to cover pretty much every professional tax preparer.  So if your tax preparer is still preparing your return in a manner where you have to file it by snail mail, that may be a red flag that your preparer is at least a little bit behind the times and it would make me wonder what else is he or she may be falling behind on.

Like most everything else in life, there are exceptions to the rules.  For example the term “tax return preparer” under these rules do not include an individual who provides tax assistance under a Volunteer Income Tax Assistance (VITA) program.  Also, financial institutions that file Forms 1041 as a trustee or fiduciary are not covered under these rules.  In addition, some tax returns with obscure forms and attachments may also fall outside the ability and requirements to e-file.  And there are other exceptions.

Dale Jensen, CPA

The newly released instructions can be found at http://www.irs.gov/pub/irs-pdf/i8938.pdf and provide detailed guidance on the following:
• Who is required to file
• Filing thresholds
• Determining fair market value
• Dates to use for valuation determination
• Currency exchange rate dates – www.fms.treas.gov/intn.html

You may also refer to the aforementioned blog for a brief summary of these requirements.  The IRS will be posting updates and recent developments relating to this form on their website at www.irs.gov/form8938. 

Penalties for failure to file or disclose required information are heavy, starting at $10,000, unless substantiated with a reasonable cause and not willful neglect.  A failure continuing for more than 90 days after the day on which the IRS mails a notice of the failure will lead to an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired, up to a maximum penalty of $50,000 for each such failure.

Jill A. Helm, CPA

First, make sure you have all the needed documents, including all your Forms W-2, before you file your 2011 tax return. If you have worked for multiple employers during the year you should receive an IRS Form W-2 from each of your employers. Employers have until Jan. 31, 2012 to issue your 2011 Form W-2 earnings statement.

If you haven’t received your W-2, follow these four steps:

1. Contact your employer - If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.

2. Contact the IRS - If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:
• Employer’s name, address and phone number

• Dates of employment

• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return - You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2.  Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.
4. File a Form 1040X – On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

If you need any assistance, we are here to help.

Jeremy Smith, CPA

This is the third year of this effort.  The prior two years, the IRS sent 10,000 letters but it has been increased to 21,000 this year.

The IRS Commissioner announced this effort in his speech to the AICPA last week:

 …Let me give you a high-level overview of our plans for the coming year. Our efforts will be focused on places of highest risk …places where the vast majority of preparers who play by the rules should want us to focus.

Beginning soon, the IRS will send letters to tax return preparers who have been identified as “high risk.” The letters are intended to bring to these return preparers’ attention that we’ve noticed some questionable traits on a number of their Schedules A, C, or E.  We ask preparers to review the rules in these areas and to ensure they are meeting their due diligence requirements when interviewing clients.

These letters will also help ensure taxpayers get the service for which they paid and they deserve. And we want to help provide a level playing field to the reputable tax return preparers who abide by the rules. Let me be clear that these letters are sent based on real data showing historical issues with taxpayer returns…  

All taxpayers should be aware that the IRS is focusing on these compliance issues and if they are not comfortable preparing their own tax returns to be sure to use a qualified and reputable CPA or tax return preparer.  Please feel free to call us if you have any questions. 

Danette Hefty, EA

The IRS is getting serious about the issue, as well.  They just released a Fact Sheet on it this month, and they have both podcasts and YouTube videos (Protect Yourself from Identity Theft and Are you a Victim of Identity Theft ) on the topic.  Seriously, they are becoming so hip at the IRS it almost makes you smile.  Almost.  Not quite.  I am even following them on twitter @IRSnews.  It is most definitely not your father’s IRS any more.

There is a special section at the IRS dedicated to identity theft matters, including tips for taxpayers and a special guide to assistance.

It is critical to note that if you should receive a notice from the IRS indicating identity theft, you must follow the instructions in the notice.  This means that you must actually open all correspondence from the IRS – don’t shove it aside.  While it is always important to deal with all notices, this one is not even potentially charging you additional tax.  Of course, identity theft can cost you more in time and money than some tax notices I have seen.

An initiative that started in 2010 has been expanded in 2011.  A group of taxpayers have received a special identity Protection Personal Identification Number, or IP PIN, for use in filing their tax returns.  If you have received one of these, you must give this information to your paid preparer.

Donna H Laubscher, CPA

In general, if you would like to deduct your education expenses you must follow these guidelines:
• The education must be required by either an employer or the law in order to keep their present salary, status, or job.
• The education must also maintain or improve the skills needed in your current job.
• Meticulous records regarding employment and the graduate business degree must be maintained. It is almost a necessity hold a job before and after starting your graduate program.
• The graduate business degree must not be required for a new job position, nor be a requirement for a professional certificate or license.
• Your work duties before entering the graduate business program and after it is completed must not be substantially different.

If you follow the above guidelines, you should be entitled to deduct your graduate business education expenses. Just be sure that your schooling is not needed to either meet the minimum educational requirements of your present job, or to qualify you for a new line of work.

Remember, taxes can be tricky. So if you are unsure as to whether you qualify for a deduction or not, it is always best to seek the advice of a professional.

Joshua S. Lemman

While most paid tax return preparers provide honest and professional service, there are some out there who do not. These con artists prey on low income individuals and the elderly. They usually promote with fliers and advertisements in community churches with claims of free money, promises of refunds, and may promote false credits and rebates. So how do you distinguish real tax preparation advertisements and those of a con artist? A big give away is that the con artists’ fliers and advertisements are usually home-made usually containing misspellings and grammatical errors. The con artists advertisements do have one thing in common though that is a dead giveaway to their scam: they all sound too good to be true.

You didn’t notice anything fishy about your new tax preparers’ advertisements and you are still worried about being the victim of a tax scam, you may be wondering: is there anything else to look out for? Documentation is key. If your tax professional asks for a lot of documentation, that is a good sign. Be wary of promises of refunds, offers of free money, and reassurances that little or no documentation is required to file your tax return; there is always a lot of documentation required to file even the simplest of returns. If you still aren’t satisfied or you just have a bad feeling about something you can always get a second opinion from another tax professional or call the IRS toll-free number at 1-800-829-1040. Also www.IRS.gov is a great source of information, if you have an idea of what to look for

Joshua S. Lemman

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

Check out this IRS website to find the countries and agreements.
http://www.irs.gov/businesses/small/international/article/0,,id=105254,00.html

When you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Your payments of these taxes contribute to your coverage under the U.S. social security system. Your employer deducts these taxes from each wage payment. Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. If you are a U.S. person working overseas for a foreign employer, you may be exempt from U.S. social security tax but be required to pay the host’s country’s equivalent. In such cases, it may be beneficial to invoke the Totalization Agreement, opt out of the host’ s country’s social tax and elect to continue to pay into the U.S. system

U.S. self-employed individuals must pay social security tax regardless of their tax residency. The foreign earned income exclusion will not be applied for purposes of determining your self- employment tax.

Employees of a foreign governments or international organizations are often exempt from local country income tax. In such cases, the foreign earned housing exclusion and totalization agreements would not apply.

For foreign workers employed in the U.S., the Employees of international organizations can only exempt wages from U.S. income tax by meeting the requirements of U.S. tax law. This exemption applies only to pay received for services performed for a foreign government or international organization. Other U.S. income received by persons who qualify for this exemption may be fully taxable or given favorable treatment under an applicable tax treaty provision.

Debra Callicutt, CPA

• There is a U.S. address associated with the payee
• The payment settlement entity has standing instructions to direct payment to a bank account maintained in the U.S.
• The payee submits for payment in U.S. dollars
• The payment settlement entity knows or has reason to know that the payee is a U.S. person

If any of the above applies, the payor may still not be subject to the reporting requirements if they obtain proof of non-U.S. status from the payee by a W-8 or other approved statement before payment is made.  Also, the payor may not be subject to the reporting requirements if the name of the payee indicates it is a foreign per se corporation.

Jill A. Helm, CPA

The OVDI gives taxpayers the chance to voluntarily report offshore accounts and any income earned from those accounts for tax years 2003 – 2010.  Under the OVDI, taxpayers have to pay penalties and interest, but are not faced with criminal prosecution.  The provisions under this new program are generally the same as the 2011 program with a couple modifications.  Increased from 25% under the 2011 program, taxpayers in the highest penalty category will be subject to a 27.5% penalty on the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure.  Participants are required to file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquent penalties.

Although taxpayers may hesitate to voluntarily come forward and pay these taxes and penalties, many understand that coming forward is a better option than having the IRS come to them first.  The IRS hopes that those who were on the fence under the previous programs will make the decision to come forward under the new program. 

Jill A. Helm, CPA