IRS Update: Small Business Health Care Tax Credit

This is a reminder that the small business health care tax credit is available to businesses with 25 or fewer employees and who offer health insurance to their employees. Eligible small employers may claim this credit when they file their 2012 Federal return using Form 8941 (Credit for Small Employer Health Insurance Premiums).

This credit has been available since 2010 and its purpose is to help eligible small businesses pay for their health insurance premiums for their employees.

Here is how the credit works:

• The credit is available to employers with 25 or fewer full-time equivalent employees whose average annual salaries are not more than $50,000.
• The credit is calculated on a sliding scale with a maximum credit of 35% of the employer’s contribution toward their employees’ health insurance premiums.
• Read more

Click here to read the entire CrossLink Tax Update that includes further information on the Small Business Health Care Tax Credit.

Status of Federal Tax Provisions Not Applicable for 2012 Tax Returns

As we informed you in May 2012, the “Extender” tax provisions expired at the end of 2011 and, as of right now, they are not applicable to 2012 Federal returns.

At the present time it is not clear when Congress will take action on the expired provisions. Since the Extender provisions are closely tied to “Bush Era Tax Cut” provisions (which expire at the end of 2012) including the automatic budget cuts (Sequestration) and the extension of the debt limit, it appears that the earliest they will be acted upon is late December 2012.

A total of 58 individual and business Federal tax provisions expired at the end of 2011. What follows is a list of the expired or changed provisions that will have the most impact to taxpayers on their 2012 Federal returns if they are not extended.

Provisions no longer applicable for Tax Year 2012 returns:

• $250 Educator Expense Deduction – Form 1040, line 23
• Tuition and Fees Deduction – Form 8917 and Form 1040, line 34
• Read more

Provisions that changed significantly for Tax Year 2012 returns:

• Alternative Minimum Tax (AMT) exemption amounts revert to what they were in Tax Year 2000
• Maximum Section 179 Deduction amount has been reduced to $139,000 for 2012
• Read more

Click here to read the entire CrossLink Tax Update that includes further information on Federal Tax Provisions not applicable for 2012 tax returns.

IRS Update: IRS EITC Preparer Compliance Update

The IRS is making changes to their ongoing EITC compliance efforts for the upcoming year. Beginning this month (October 2012), EITC return preparers that have been identified by the IRS as “at risk” for filing returns with EITC errors will receive compliance letters, educational visits, or be subject to a due diligence audit.

The IRS uses a risk-based scoring model to determine which preparers of EITC returns warrant one of the following types of actions from the IRS:

• Soft Compliance Letter - During October 2012 and November 2012 the IRS will be mailing 3,000 compliance letters to new and low-to-medium risk EITC preparers. Read More
• Knock and Talk (Educational Visit) - During December 2012, the IRS will conduct 100 educational visits to preparers whom the IRS has identified as filing highly questionable Tax Year 2011 EITC returns. Read More
• Due Diligence Audit Visit - Due diligence audits are performed on preparers whom the IRS has identified as being at the highest risk of preparing questionable EITC returns. Read More

Click here to read the entire CrossLink Tax Update that includes further information on IRS EITC Preparer Compliance.

Last Day to e-File Tax Year 2011 Returns

This is a reminder that the IRS will be shutting down the e-File system this Friday, October 19, 2012.In order to ensure that you receive your acknowledgement by Friday, be sure that you transmit any remaining Tax Year 2011 returns by tomorrow, October 18.

Any Tax Year 2011 returns that are not e-Filed by October 18 will be refused by Central Site and will need to be filed by paper for the remainder of 2012.

Changes to IRS Form 2848 (Power of Attorney)

The most recent revision (Rev. March 2012) of Form 2848 (Power of Attorney) has some changes that you should be aware of. As a reminder, this is the form that a taxpayer uses to authorize their tax return preparer to represent them before the IRS – usually regarding tax returns for specified years.

Below are the changes to Form 2848:

• In order to represent a married couple on a joint return, both the husband and wife must now complete and submit separate Forms 2848.
• If you wish to have the IRS send copies of all notices and communications to you, the box next to each representative’s name and address must be checked.
• Click here to read more.

Click here to read the entire CrossLink Tax Update that includes further information on the changes to IRS Form 2848 (Power of Attorney).

IRS Update: EITC Warning Letters and Self-Employed Deductibility of Medicare Premiums

IRS Warning Letters for Tax Preparers Who Did Not Submit Form 8867 with EITC Returns

Beginning this filing season the Internal Revenue Service (IRS) requires that any tax return claiming EITC that is completed by a paid preparer must have the Form 8867 (Paid Preparer’s EIC Checklist) attached to it. The failure to comply with this requirement means that the paid preparer is not meeting their due diligence requirements and is therefore subject to a $500 penalty for each tax return that does not have Form 8867 attached to it.

The IRS has begun sending out warning letters to preparers who have submitted Tax Year 2011 EITC tax returns without attaching Form 8867. This letter warns the preparer that they did not meet their due diligence requirements in 2012. The IRS will not assess any penalties for the 2012 Filing Season. Click here to read more.

Self-Employed Taxpayers Can Deduct Medicare Premiums

The IRS Office of Chief Council has advised IRS attorneys that self-employed taxpayers may deduct Medicare premiums when calculating the self-employed health insurance deduction on Form 1040, line 29.

This reverses the IRS stance held before 2010 when the IRS stated that self-employed taxpayers could not include any Medicare premiums in the self-employed health insurance deduction. This decision also expands what the IRS permitted in 2011, allowing self-employed taxpayers to include only Medicare Part B premiums when calculating the self-employed health insurance deduction.

Click here or to read the entire CrossLink Tax Update that includes further information on EITC Warning Letters and Self-Employed Deductibility of Medicare premiums.

IRS Update: IRS “Fresh Start” Initiative and Changes to IRS Offer-in-Compromise Program

As part of their continuing “Fresh Start” initiative, the IRS has announced that they will be offering more flexible terms to its Offer-in-Compromise (OIC) program. This will enable some of the most financially distressed taxpayers to resolve their tax problems more quickly.

The IRS has made the following changes to the OIC program to more closely reflect real-world situations:

• When calculating a taxpayer’s reasonable collection period, it will now look at future income as follows:
• Offers paid in 5 or fewer months: 1 year (down from 4 years)
• Offers paid in 6 to 24 months: 2 years (down from 5 years)
• Allowing taxpayers to pay their student loans
• Click here to read more

The IRS “Fresh Start” Initiative began in 2008 and has included the following:

• In 2008: Lien relief for taxpayers trying to refinance or sell a home
• In 2009: New flexibility for taxpayers facing payment or collection problems
• Click here to read more

Click here to read the entire CrossLink Tax Update that includes further information regarding the IRS "Fresh Start" Initiative and Changes to IRS Offer-in-Compromise Program.