Six Tips for Taxpayer Clients with Foreign Income

Here are six tips provided by the IRS for taxpayer clients with foreign income:

1. Report Worldwide Income. The law requires U.S. citizens and resident aliens to report any worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms. In most cases, affected taxpayers need to file Schedule B, Interest and Ordinary Dividends, with their tax returns. Some taxpayers may need to file additional forms. For example, some may need to file Form 8938, Statement of Specified Foreign Financial Assets, while others may need to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department. See Publication 4261, Do You Have a Foreign Financial Account?, for more information.

3. Consider the Automatic Extension. U.S. citizens and resident aliens living abroad on April 15, 2013, may qualify for an automatic two-month extension to file their 2012 federal income tax returns. The extension of time to file until June 17, 2013, also applies to those serving in the military outside the U.S. Taxpayers must attach a statement to their returns explaining why they qualify for the extension.

4. Review the Foreign Earned Income Exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion. This means taxpayers who qualify will not pay taxes on up to $95,100 of their wages and other foreign earned income they received in 2012. See Forms 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion, for more information.

5. Don’t Overlook Credits and Deductions. Taxpayers may be able to take either a credit or a deduction for income taxes paid to a foreign country. This benefit reduces the taxes these taxpayers pay in situations where both the U.S. and another country tax the same income.

6. Get Tax Help Outside the U.S. Taxpayers living abroad can get IRS help in four U.S. embassies and consulates. IRS staff at these offices can help with tax filing issues and answer questions about IRS notices and tax bills. The offices also have tax forms and publications. To find the nearest foreign IRS office, taxpayers should visit the IRS.gov website. At the bottom of the home page click on the link labeled ‘Contact Your Local IRS Office.’ Then click on ‘International.’

Additional IRS Resources:

• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• Report of Foreign Bank and Financial Accounts (FBAR)
• Publication 4261, Do You Have a Foreign Financial Account?
• Form 8938, Statement of Specified Foreign Financial Assets
• Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts
• Form 2555, Foreign Earned Income
• Form 2555-EZ, Foreign Earned Income Exclusion
• International IRS offices

(Source: adapted from IRS e-mail "IRS Tax Tip 2013-42:  Seven Tips for Taxpayers with Foreign Income")

IRS Update: Safeguarding Taxpayer Data

The IRS requires all tax professionals to implement safeguards to protect taxpayer data. This includes paper data as well as electronic data. Read more

Under IRS Revenue Procedure 2007-40 (rules governing e-file providers and the overall IRS e-file program), Section 5.03 states:

The security of taxpayer accounts and personal information is a top priority for the Service. It is the responsibility of each Authorized IRS e-file Provider to have security systems in place to prevent unauthorized access to taxpayer accounts and personal information by third parties . . . Read more

The IRS has created publications to provide guidance to the tax professional community to help them meet their responsibilities for safeguarding taxpayer data. Read the publications here.

Click here to read the entire CrossLink Tax Update about safeguarding taxpayer data.

IRS Late Payment Penalty Relief for Returns with Delayed Forms

The IRS is providing late payment penalty relief to individuals and businesses that file an extension to file their tax returns. However, the relief only applies to those who owe additional tax because their return includes a form that the IRS did not allow to be filed until after January 2013.

Individuals and businesses can qualify for this relief if they properly file an extension to file their 2012 tax returns. Eligible taxpayers do not need to make any special notation on their extension request; however, they must properly estimate their expected tax liability and pay the estimated amount by the due date of the return. Interest will still apply to tax due after the original due date.

Some examples of returns that qualify for this relief are returns that include the following:

·         Form 4562 (Depreciation and Amortization)

·         Form 4136 (Credit for Federal Tax Paid on Fuels)

·         Form 8863 (Education Credits)

·         Form 3800 (General Business Credit)

·         Form 5695 (Residential Energy Credits)

·         Form 8582 (Passive Activity Loss Limitations)

For a complete listing of all eligible forms see Exhibit 1 of Notice 2013-24

For more information see the March 20, 2013 Relief Available to Many Extension Requesters Claiming Tax Benefits article on the IRS newswire page.

IRS Update: Things to Know for the Remainder of the 2013 Filing Season

Reduction in Refundable Portion of the Small Business Health Care Tax Credit

Due to the sequestration legislation that went into effect on March 1, 2013, the refundable portion of the Small Business Health Care Tax Credit will be reduced by 8.7 percent for the remainder of the Federal fiscal year (September 30, 2013). This reduction may be restored if Congress restores the automatic cut that affected this credit. Read more

2012 Federal Returns with Form 8839 (Qualified Adoption Expenses)

Because of the late passage of legislation that permanently extended the adoption credit and made the credit nonrefundable, the IRS is requiring that 2012 Federal returns that include Form 8839 be filed on paper. In addition, there is no longer a requirement to attach supporting documentation for the adoption expenses. Read more

New IRS Video Explaining How to Report Certain Military Retirement Income

The IRS has added a new video that explains how to report military retirement income for veterans when there is an increase in the percentage of disability by the Veterans Administration, or the veteran was granted combat-related special compensation after an award for concurrent retirement and disability.

Click here to read the entire CrossLink Tax Update about things to know for the remainder of the 2013 Filing Season.

IRS Update: 2012 Health Insurance Rebates for Individuals

If you have customers that paid for their own insurance in 2011, they may be affected by a provision in the Affordable Care Act that requires health insurance companies to issue rebates to their customers. The rebates are required to be issued if health insurance companies do not spend a minimum specified percentage of their premium dollars on medical care and quality improvement activities. This is known as the Medical Loss Ratio standard. Read more

The Medical Loss Ratio provisions require insurance companies to spend at least 80% or 85% of premium dollars on medical care. If they fail to meet these standards they are required to provide a rebate to their customers starting in 2012. Read more

A taxpayer who received a rebate on their individual health insurance during 2012 may have to show the rebate amount as income on their 2012 Federal income tax return. The rebate will need to be reported as income if the taxpayer received a tax benefit on their 2011 Federal return because they included those insurance payments:

• In their total medical expenses reported on Schedule A; or
• As a deduction on Form 1040, line 29 for self-employed health insurance premiums.

Click here to read the entire CrossLink Tax Update about 2012 health insurance rebates for individuals.

IRS Now Accepting Tax Forms Previously Delayed Until Early March

The IRS is now accepting returns with the following previously-delayed tax forms:

• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuels
• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5695 Residential Energy Credits
• Form 5735 American Samoa Economic Development Credit
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8396 Mortgage Interest Credit
• Form 8582 Passive Activity Loss Limitations
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8859 District of Columbia First-Time Homebuyer Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

Registration Open for 2013 IRS Nationwide Tax Forums

The IRS has opened registration for the 2013 Nationwide Tax Forums at $220 for early registration and $349 for late registration.

A list of locations and dates appears below.

Orlando, FL -- July 9-11
Grapevine, TX (Dallas area) -- July 30-August 1
New Orleans, LA -- August 13-15
Atlanta, GA -- August 20-22
National Harbor, MD (Washington DC area) -- August 27-29
San Diego, CA -- September 17-19

For more information and to register, please visit the official IRS Nationwide Tax Forum website.