Eight Facts to Know if You Receive an IRS Letter or Notice

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The IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be dealt with simply, without having to call or visit an IRS office.

Here are eight things to know about IRS notices and letters.

  1. There are a number of reasons why the IRS might send you a notice. Notices may request payment, notify you of account changes, or request additional information. A notice normally covers a very specific issue about your account or tax return.
  2. Each letter and notice offers specific instructions on what action you need to take.
  3. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  4. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
  5. If you do not agree with the correction the IRS made, it is important to respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left of the notice. Allow at least 30 days for a response.
  6. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, feel free to contact us and schedule a consultation. Bring a copy of your tax return and the correspondence available when you call / come.
  7. It’s important to keep copies of any correspondence with your records.
  8. IRS notices and letters are sent by mail. The IRS does not correspond by email about taxpayer accounts or tax returns.

Manendra (Manen) Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: SchaumburgCPA.Info

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Special Rules for Health Insurance Costs of 2-Percent Shareholder-Employees – Notice 2008-1

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This notice provides rules under which a 2-percent shareholder-employee in an S corporation is entitled to the deduction under §162(l) of the Internal Revenue Code for accident and health insurance premiums that are paid or reimbursed by the S corporation and included in the 2-percent shareholder-employee’s gross income.

LAW AND ANALYSIS

Section 1372(a) provides that, for purposes of applying the income tax provisions of the Code relating to employee fringe benefits, an S corporation shall be treated as a partnership, and any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership. For purposes of § 1372, the term “2-percent shareholder’’ is any person who owns (or is considered as owning within the meaning of § 318) on any day during the taxable year of the S corporation more than 2 percent of the outstanding stock of such corporation or stock possessing more than 2 percent of the total combined voting power of all stock of such corporation. Section 1372(b).

Accident and health insurance premiums paid or furnished by an S corporation on behalf of its 2-percent shareholders in consideration for services rendered are treated for income tax purposes like partnership guaranteed payments under § 707(c) of the Code. Rev. Rul. 91-26, 1991-1 C.B. 184. An S corporation is entitled to deduct the cost of such employee fringe benefits under § 162(a) if the requirements of that section are satisfied (taking into account the rules of § 263). The premium payments are included in wages for income tax withholding purposes on the shareholder-employee’s Form W-2, Wage and Tax Statement, but are not wages subject to Social Security and Medicare taxes if the requirements for exclusion under section 3121(a)(2)(B) are satisfied. See § 3121(a)(2)(B); Ann. 92-16, 1992-5 I.R.B. 53. The 2-percent shareholder is required to include the amount of the accident and health insurance premiums in gross income under § 61(a).

Section 106 provides an exclusion from the gross income of an employee for employer-provided coverage under an accident and health plan. A 2-percent shareholder is not an employee for purposes of §106. Treas. Reg. §1.106-1; section 1372(a). Accordingly, the premiums are not excludible from the 2-percent shareholder-employee’s gross income under §106.

Section 162(l)(1)(A) allows an individual who is an employee within the meaning of § 401(c)(1) to take a deduction in computing adjusted gross income for amounts paid during the taxable year for insurance that constitutes medical care for the taxpayer, his or her spouse, and dependents. The deduction is not allowed to the extent that the amount of the deduction exceeds the earned income (within the meaning of section 401(c)(2)) derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established. Section 162(l)(2)(A). Also, the deduction is not allowed for amounts during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer or of the spouse of the taxpayer. Section 162(l)(2)(B).

A 2-percent shareholder-employee in an S corporation, who otherwise meets the requirements of section 162(l), is eligible for the deduction under section 162(l) if the plan providing medical care coverage for the 2-percent shareholder-employee is established by the S corporation. Rev. Rul. 91-26, 1991-1 C.B. 184. A plan providing medical care coverage for the 2-percent shareholder-employee in an  S corporation is established by the  S corporation if: (1) the S corporation makes the premium payments for the accident and health insurance policy covering the 2-percent shareholder-employee (and his or her spouse or dependents, if applicable) in the current taxable year; or (2) the 2-percent shareholder makes the premium payments and furnishes proof of premium payment to the S corporation and then the S corporation reimburses the 2-percent shareholder-employee for the premium payments in the current taxable year. If the accident and health insurance premiums are not paid or reimbursed by the S corporation and included in the 2-percent shareholder-employee’s gross income, a plan providing medical care coverage for the 2-percent shareholder-employee is not established by the  S corporation and the 2-percent shareholder-employee in an S corporation is not allowed the deduction under § 162(l).

In order for the 2-pecent shareholder-employee to deduct the amount of the accident and health insurance premiums, the S corporation must report the accident and health insurance premiums paid or reimbursed as wages on the 2-percent shareholder-employee’s Form W-2 in that same year. In addition, the shareholder must report the premium payments or reimbursements from the S corporation as gross income on his or her Form 1040, U.S. Individual Income Tax Return.

EXAMPLES

The following examples illustrate these rules. The following examples assume that each shareholder is a 2-percent shareholder-employee in an S corporation, whose earned income from the S corporation exceeds the amount of the premiums for the accident and health insurance policies covering the shareholder, his or her spouse and dependents. None of the shareholders in the following examples are eligible to participate in any subsidized health plan maintained by an employer of the shareholder or the shareholder’s spouse.

Example 1. (i) For 2008, shareholder A obtains an accident and health insurance policy in the name of shareholder A and makes the premium payments on the policy. The S corporation makes no payments or reimbursements with respect to the premiums.

(ii) A plan providing medical care for shareholder A is not established by the S corporation and shareholder A is not entitled to the deduction under § 162(l).

Example 2. (i) For 2008, the S corporation obtains an accident and health insurance plan in the name of the S corporation. The health plan provides coverage for shareholder B, B’s spouse and dependents. The S corporation makes all the premium payments to the insurance company. The S corporation reports the amount of the premiums as wages on shareholder B’s Form W-2 for 2008 and shareholder B reports that amount as gross income on Form 1040 for 2008.

(ii) A plan providing medical care for shareholder B has been established by the S corporation and shareholder B is allowed the deduction under § 162(l) for 2008.

Example 3. (i) For 2008, shareholder C obtains an accident and health insurance policy in the name of shareholder C. The S corporation makes all the premium payments to the insurance company. The S corporation reports the amount of the premiums as wages on shareholder C’s Form W-2 for 2008 and shareholder C reports that amount as gross income on Form 1040 for 2008.

(ii) A plan providing medical care for shareholder C has been established by the S corporation and shareholder C is allowed the deduction under § 162(l) for 2008.

Example 4. (i) For 2008, shareholder D obtains an accident and health insurance policy in the name of shareholder D. Shareholder D makes the premium payments to the insurance company and furnishes proof of premium payment to the S corporation. The S corporation then reimburses shareholder D for the premium payments. The S corporation reports the amount of the premium reimbursements as wages on shareholder D’s Form W-2 for 2008 and shareholder D reports that amount as gross income on Form 1040 for 2008.

(ii) A plan providing medical care for shareholder D has been established by the S corporation and shareholder D is allowed the deduction under § 162(l) for 2008.

AMENDED RETURNS FOR PRIOR TAXABLE YEARS

Taxpayers who did not claim deductions for fringe benefits described in this notice may file timely amended tax returns to claim the deduction under § 162(l) if the taxpayers satisfy the requirements of this notice. The statement “Filed Pursuant to Notice 2008-1” should be written on the top of any amended return.

The Service does not consider payments of accident and health insurance premiums by an S corporation on behalf of 2-percent shareholder-employees to be distributions for purposes of the single class of stock requirement of §1361(b)(1)(D).

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S Corporation Employees, Shareholders and Corporate Officers

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Who is an Employee?

The definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code include corporate officers. When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered wages.

The fact that an officer is also a shareholder does not change this requirement.  Such payments to the corporate officer are treated as wages. Courts have consistently held S corporation officers/shareholders who provide more than minor services to their corporation and receive, or are entitled to receive, compensation are subject to federal employment taxes.

If an officer does not perform any services or only performs minor services and is not entitled to compensation, the officer would not be considered an employee.

Distributions, Dividends and Other Compensation as Wages

Courts have found shareholder-employees are subject to employment taxes even when shareholders take distributions, dividends or other forms of compensation instead of wages.

In 2001, in a Tax Court case against a Veterinary Clinic, the Tax Court ruled that an employer cannot avoid federal taxes by characterizing compensation paid to its sole director and shareholder as distributions of the corporation’s net income rather than wages.  Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)

The Sixth Circuit held that a shareholder-employee of a company used the company bank account for personal use.  As such, the Court ruled the shareholder was an employee and owed employment tax. Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000)

In yet another similar case, the Tax Court held that an accountant was taking dividends and performing duties for the company. The Tax Court ruled the dividends were actually wages, subject to employment taxes. Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)

Manendra (Manen) Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: SchaumburgCPA.Info

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S Corporation Compensation and Medical Insurance Issues

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When computing compensation for employees and shareholders, S corporations may run into a variety of issues. The information below may help to clarify some of these concerns.

Reasonable Compensation

S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes.

Authority to Reclassify Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000)
Reinforced Employment Status of Shareholders Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001)Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. 121 (2002)

The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation. As such, we need to look to the source of the S corporation’s gross receipts.

The three major sources are:

  1. Services of shareholder,
  2. Services of non-shareholder employees, or
  3. Capital and equipment.

If the gross receipts and profits come from items 2 and 3, then that should not be associated with the shareholder-employees personal services and not be allocated as compensation.

On the other hand, if most of the gross receipts and profits are associated with the shareholders personal services, then most of the profit distribution should be allocated as compensation.

In addition to the shareholder-employee direct generation of gross receipts, the shareholder-employee should also be compensated for administrative work performed for the other income producing employees or assets. For example, a manager may not directly produce gross receipts, but he assists the other employees or assets which are producing the day-to-day gross receipts.

Some factors in determining reasonable compensation:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation

Treating Medical Insurance Premiums as Wages

Heath and accident insurance premiums paid on behalf of the greater than two percent S corporation shareholder-employee are deductible and reportable by the S corporation as wages for income tax withholding purposes on the shareholder-employee’s Form W-2.

These benefits are not subject to Social Security or Medicare (FICA) or Unemployment (FUTA) taxes. The additional compensation is included in Box 1 (Wages) of the Form W-2, Wage and Tax Statement, issued to the shareholder-employee, but would not be included in Boxes 3 and 5 of Form W-2.

A 2-percent shareholder-employee is eligible for an Adjusted Gross Income (AGI) deduction for amounts paid during the year for medical care premiums if the medical care coverage is established by the S corporation and the shareholder meets the other self-employed medical insurance deduction requirements.  If, however, the shareholder or the  shareholder’s spouse is eligible to participate in any subsidized health care plan then the shareholder is not entitled to the AGI deduction.

A medical plan can be considered established by the S corporation if the S corporation paid or reimbursed the shareholder-employee for premiums and reported:

  • The premium payment
  • Reimbursement as wages on the shareholder-employee’s W-2

Health Insurance Purchased in Name of Shareholder

The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name.

The IRS issued Notice 2008-1 which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, three of the examples had the shareholder purchasing the health insurance and the other example had the S corporation purchasing the health insurance.

The Notice held that if the shareholder purchased the health insurance in his own name and paid for it with his own funds the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction.

The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums had to be paid by the S corporation and had to be included in the shareholder’s W-2.

Manendra (Manen) Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: SchaumburgCPA.Info

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Voluntary Compliance Agreements – Restaurant Tax Tips

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The IRS has established voluntary compliance agreements for industries, such as the restaurant industry, where tipping is customary. These agreements are designed to enhance tax compliance among tipped employees through taxpayer education, instead of through traditional enforcement actions, such as tip examinations.

Three types of tip agreements have been developed for the food and beverage industry:

Comparing TRDA and TRAC Agreements

TRDA

TRAC
Requires the IRS to work with the business to arrive at a tip rate for its various occupations. Does not require that a tip rate be established but it does require the employer to:

  • Establish a procedure where a directly tipped employee is provided (no less than monthly) a written statement of charged tips attributed to the employee.
  • Implement a procedure for the employees to verify or correct any statement of attributed tips.
  • Adopt a method where an indirectly-tipped employee reports his/her tips (no less than monthly).

Establish a procedure where a written statement is prepared and processed (no less than monthly) reflecting all cash tips attributable to sales of the directly-tipped employee.
Requires the employee to enter into a Tipped Employee Participation Agreement (TEPA) with the employer. Does not require an agreement between the employee and the employer.
Requires the employer to get 75% of the employees to sign TEPAs and report at or above the determined rate. Affects all (100%) employees.
Provides that if employees fail to report at or above the determined rate, the employer will provide the names of those employees, their SSNs, job classification, sales, hours worked, and amount of tips reported. Provides that if the employees of a business collectively underreport their tip income, tip examinations may occur but only for those employees that underreport.
Has no specific education requirement. Includes a commitment by the employer to educate and reeducate quarterly all directly and indirectly-tipped employees and new hires of their statutory requirement to report all tips to their employer.
Participation assures the employer that prior periods will not be examined as long as participants comply with the requirements under the agreement. Same rule.

EmTRAC Agreements

The IRS developed the EmTRAC Agreement program in response to employers in the food and beverage industry who expressed an interest in designing their own TRAC programs.

EmTRAC Agreements are available to employers in the food and beverage industry whose employees receive both cash and charged tips. The EmTRAC program retains many of the provisions in the TRAC agreement including:

  • The employer must establish an educational program that trains employees that the law requires them to report all their cash and charged tips to their employer.
    • Education must be furnished for newly hired employees and quarterly for existing employees.
  • The employer must establish tip reporting procedures under which a written or electronic statement is prepared and processed on a regular basis (no less than monthly), reflecting all tips for services attributable to each employee.
    The EmTRAC program provides an employer with considerable latitude in designing its educational program and tip reporting procedures, which the employer may combine.

For additional information about EmTRAC Program Requirements and EmTRAC Approval Requests, Contact us:

Manendra (Manen) Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: SchaumburgCPA.Info

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New IRS Fresh Start Initiative Helps Taxpayers Who Owe Taxes

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The Internal Revenue Service has expanded its “Fresh Start” initiative to help struggling taxpayers who owe taxes. The following tips explain the expanded relief for taxpayers.

Penalty relief Part of the initiative relieves some unemployed taxpayers from failure-to-pay penalties. Penalties are one of the biggest factors a financially distressed taxpayer faces on a tax bill.The Fresh Start Penalty Relief Initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes. Interest still applies on the 2011 taxes from April 15, 2012 until the tax is paid, but you won’t face failure-to-pay penalties if you pay your tax, interest and any other penalties in full by Oct. 15, 2012.

1. The penalty relief is available to two categories of taxpayers:

* Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 tax deadline.

* Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

To qualify for this penalty relief, your adjusted gross income must not exceed $200,000 if married filing jointly or $100,000 if your filing status is single, married filing separately, head of household, or qualifying widower. Your 2011 balance due can not exceed $50,000. Taxpayers who qualify need to complete a new Form 1127A to request the 2011 penalty relief.

2. Installment agreements An installment agreement is a payment option for those who cannot pay their entire tax bill by the due date. The Fresh Start provisions give more taxpayers the ability to use streamlined installment agreements to catch up on back taxes and also more time to pay.

The new threshold for requesting an installment agreement has been raised from $25,000 to $50,000. This option requires limited financial information, meaning far less burden to the taxpayer. The maximum term for streamlined installment agreements has been raised to six years from the current five-year maximum.

If your debt is more than $50,000, you’ll still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). You also can pay your balance down to $50,000 or less to qualify for this payment option.

With an installment agreement, you’ll pay less in penalties, but interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, you must agree to monthly direct debit payments.

We can help you set up an installment agreement with the IRS.

3. Offer in Compromise Under the first round of Fresh Start in 2011, the IRS expanded the Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes many taxpayers are still struggling to pay their bills so the agency has been working on more common-sense changes to the OIC program to more closely reflect real-world situations.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Please feel free to consult if you have any questions or need help with any of the relief above.


Manendra (Manen) Kothari, CPA
MKothari@SKTaxes.com
127 S. Roselle Rd Ste # 200  Schaumburg, IL 60193
Ph: 847.524.0001
SK Tax Associates,  CPAs

Blog: SchaumburgCPA.Info

 

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IRS2Go 2.0 Offers.

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The Internal Revenue Service announced today the availability of IRS2Go 2.0, an expanded version of its smartphone application designed to provide taxpayers easier access to practical tools and information.

The new app, available on the Apple and Android platforms, adds a new YouTube feature, news feed and tax transcript service in addition to existing tools, such as checking on the status of a tax refund.

The IRS released the first version of IRS2Go in 2011, and had more than 350,000 downloads. The phone app offers taxpayers a number of safe and secure ways to access information and keep current on practical tax information. The 2.0 version of the phone app includes three new tools:

  • Watch Us. People can view IRS YouTube videos on their smartphones. The videos provide short, informative features on a variety of tax topics. The channel ranks as the fourth most viewed channel among more than 125 federal government YouTube channels. IRS also has YouTube channels available in multilingual and American Sign Language.
  • Get the Latest News. With this tool, users can have the latest IRS news releases delivered to their phones as it becomes available.
  • Get My Tax Record. Taxpayers can now order their tax return transcript from the IRS2Go app. The transcript will be delivered via the U.S. Postal Service to their address of record.
  • Get Your Refund Status. Taxpayers can check the status of their federal tax refund through the phone app with a few basic pieces of information. An updated refund status is available about three days after the IRS acknowledges receipt of an e-filed return, or four weeks after mailing a paper return.
  • Get Tax Updates. Phone app users enter their e-mail address to automatically receive simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the filing season and periodically throughout the rest of the year.
  • Follow the IRS. Taxpayers can sign up to follow the IRS Twitter newsfeed, @IRSnews, which provides easy-to-use information, including updates on tax law changes and important IRS programs.

For more information on IRS2Go and other products and services through social media channels, visit www.SKTaxes.com and contact us.

Manendra Kothari, CPA
SK Tax Associates, CPAs
Schaumburg: 127 S. Roselle Rd Ste # 200 Schaumburg, IL 60193
Ph: 847.524.0001       
E-mail: MKothari@SKTaxes.com
www.SKTaxes.com
Blog :http://schaumburgcpa.info/2012/02/irs2go-2-0-offers

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IRS Reminds Preparers and Providers of New Continuing Education Requirements

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WASHINGTON — The Internal Revenue Service today reminded certain tax return preparers that they must complete 15 hours of continuing education (CE) annually beginning in 2012 and the programs must be taken from IRS-approved providers. Preparers can now find a list of IRS-approved providers on the agency’s web site.

The new CE requirement is part of an IRS return preparer oversight effort and applies to the same individuals who are required to pass a new Registered Tax Return Preparer competency test.
Certified public accountants, attorneys and enrolled agents are exempt from this 15-hour CE requirement and test requirement because they already meet separate requirements. Non-signing preparers supervised by CPAs, attorneys or enrolled agents in law, accounting and recognized firms  also are exempt from the continuing education and test requirements, as are tax return preparers who do not prepare any Form 1040 series returns.

The 15 hours of continuing education must include 10 hours of federal tax law, three hours of federal tax law updates and two hours of ethics each calendar year. Return preparers must provide their Preparer Tax Identification Numbers to the CE providers so their continuing education can be properly reported to the IRS.

Completion of the CE requirement for these preparers is a condition for the annual renewal of the PTIN, which is required to prepare federal tax returns. The requirement is prorated for preparers who obtain a PTIN during the year.

IRS Approved Providers
To date, 163 providers have applied and been approved through the new provider application process launched in December 2011. Providers must be one of the following:

  • An accredited educational institution,
  • Recognized for continuing education purposes by the licensing body of any state or U.S. territory,
  • Approved by an IRS Accrediting Organization [at this time, the National Association of State Boards of Accountancy (NASBA) is the only IRS Accrediting Organization] as a provider of CE to registered tax return preparers, enrolled agents and enrolled retirement plan agents, or
  • Any other professional organization, society or business recognized by the IRS as a provider of CE to registered tax return preparers, enrolled agents and enrolled retirement plan agents.

Accredited educational institutions must now register for their programs to qualify for IRS CE credit. Previously, enrolled agents and enrolled retirement plan agents could obtain IRS CE credit for completing qualified continuing education at an accredited educational institution even if the educational institution did not register with the IRS.

Manendra Kothari, CPA
SK Tax Associates, CPAs
Schaumburg: 127 S. Roselle Rd Ste # 200 Schaumburg, IL 60193
Ph: 847.524.0001       
E-mail: MKothari@SKTaxes.com
www.SKTaxes.com
Blog :http://schaumburgcpa.info

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Backup Withholding

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Banks or other businesses that pay you certain kinds of income must file an information return Form 1099 with the IRS. The information return shows how much you were paid during the year. It also includes your name and taxpayer identification number (TIN).
These payments generally are not subject to withholding. However, “backup” withholding is required in certain situations.
Payments subject to backup withholding: Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:

  • Interest payments (Form 1099–INT)
  • Dividends (Form 1099–DIV)
  • Patronage dividends, but only if at least half of the payment is in money (Form 1099–PATR)
  • Rents, profits, or other gains (Form 1099–MISC)
  • Commissions, fees, or other payments for work you do as an independent contractor (Form 1099–MISC)
  • Royalty payments (Form 1099–MISC), and
  • Certain other payments.

Backup withholding also may apply to gambling winnings (Form W-2G), unless subject to regular gambling withholding.
Withholding rules. When you open a new account, make an investment, or begin to receive payments reported on Form 1099, the bank or other business will give you Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. You must enter your TIN on the form and, if your account or investment will earn interest or dividends, you also must certify (under penalties of perjury) that your TIN is correct and that you are not subject to backup withholding.
The payer must withhold at a flat 28% rate in the following situations:

  • You do not give the payer your TIN in the required manner
  • The IRS notifies the payer that the TIN you gave is incorrect
  • You are required, but fail, to certify that you are not subject to backup withholding
  • The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 210-day period.

How to prevent or stop backup withholding. If you have been notified by a payer that the TIN you gave is incorrect, you usually can prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. You must certify that the TIN you give is correct.
If you have been notified that you underreported interest or dividends, you must request and receive a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun.
Backup withholding. If income tax has been withheld under the backup withholding rule, take credit for it on your tax return for the fiscal year in which you received the income.

Manendra Kothari, CPA
SK Tax Associates, CPAs
Schaumburg: 127 S. Roselle Rd Ste # 200 Schaumburg, IL 60193
Ph: 847.524.0001
E mail:-MKothari@SKTaxes.com
Web : www.SKTaxes.com
Blog : http://schaumburgcpa.info/2012/02/backup-withholding

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Refund Offsets: For Unpaid Child Support, And Certain Federal, State, and Unemployment Compensation Debts

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The Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, has been authorized by Congress to conduct the Treasury Offset Program. Through this program, your refund or overpayment may be reduced by FMS and offset to pay:

  • Past-due child support
  • Federal agency non-tax debts
  • State income tax obligations, or
  • Certain unemployment compensation debts owed a state. (Generally these are debts for compensation that was paid due to fraud or for contributions due to a state fund that were not paid due to fraud)

You can contact the agency with which you have a debt, to determine if your debt was submitted for a tax refund offset. You may call FMS at the number below for an agency address and phone number. If your debt was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt and send it to the agency you owe. Any portion of your refund remaining after offset will be issued in a check to you or direct deposited for you.

FMS will send you a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency. FMS will notify the IRS of the amount taken from your refund. Contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund. If a notice is not received contact FMS at 800-304-3107 or TDD 866-297-0517. The available hours are Monday through Friday 7:30AM to 5:00PM CT. 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.If any query please contact us.

Manendra Kothari, CPA
SK Tax Associates, CPAs
Schaumburg: 127 S. Roselle Rd Ste # 200 Schaumburg, IL 60193
Ph: 847.524.0001
E mail :MKothari@SKTaxes.com
Web : www.SKTaxes.com
Blog :http://schaumburgcpa.info

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