Special Interest Articles |
New Homebuyer Credit Form Released; Taxpayers
Reminded to Attach Settlement Statement and Other Key Documents
Electronic Filing PIN
Higher Standards to Boost Protections and Service
for Taxpayers,
Increase Confidence in System, Yield Greater Compliance with Tax Laws
The IRS Reminds Tax-Exempt Organizations
of All Sizes to File the Form 990 on Time to Preserve Their Tax Exempt
Status
Standard Deduction Increases for Most Taxpayers
Most Workers Need to File New Schedule M; Making
Work Pay Credit Offers Tax Savings Up to $800
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The IRS released the new form
that eligible homebuyers need to claim the first-time homebuyer credit
this tax season; processing of those tax returns will begin in
mid-February. The IRS has new documentation requirements to deter fraud
related to the first-time homebuyer credit.
The new form and instructions
follow major changes in November to the homebuyer credit by the Worker,
Homeownership, and Business Assistance Act of 2009. The new law extended
the credit to a broader range of home purchasers and added new
documentation requirements to deter fraud and ensure taxpayers properly
claim the credit.
 With the release of
Form 5405,
First-Time Homebuyer Credit and Repayment of the Credit, and the related
instructions,
eligible homebuyers can now start to file their 2009 tax returns.
Taxpayers claiming the homebuyer credit must file a paper tax return
because of the added documentation requirements.
The IRS expects to start
processing 2009 tax returns claiming the homebuyer credit in
mid-February after it completes the updating and testing of systems to
meet the law’s new requirements. The updates allow the IRS to put in
place critical systemic checks to deter fraud related to the homebuyer
credit.
Some
of these early taxpayers claiming the homebuyer credit may see tax
refunds take an additional two to three weeks.
In addition to filling out a
Form 5405, all eligible homebuyers must include with their 2009 tax
returns one of the following documents in order to receive the credit:
 | A copy of the settlement
statement showing all parties' names and signatures, property
address, sales price, and date of purchase. Normally, this is the
properly executed Form HUD-1, Settlement Statement. |
| For mobile home purchasers
who are unable to get a settlement statement, a copy of the executed
retail sales contract showing all parties' names and signatures,
property address, purchase price and date of purchase. |
| For a newly constructed
home where a settlement statement is not available, a copy of the
certificate of occupancy showing the owner’s name, property address
and date of the certificate. |
In addition, the new law allows
a long-time resident of the same main home to claim the homebuyer credit
if they purchase a new principal residence. To qualify, eligible
taxpayers must show that they lived in their old homes for a
five-consecutive-year period during the eight-year period ending on the
purchase date of the new home. The IRS has stepped up compliance checks
involving the homebuyer credit, and it encouraged homebuyers claiming
this part of the credit to avoid refund delays by attaching
documentation covering the five-consecutive-year period:
| Form 1098, Mortgage
Interest Statement, or substitute mortgage interest statements, |
| Property tax records or |
| Homeowner’s insurance
records. |
The IRS also reminded homebuyers
that the new documentation requirements mean that taxpayers claiming the
credit cannot file electronically and must file paper returns. Taxpayers
must print out their reutrns and sent to the IRS, along with all
required documentation.
Normally, it takes about four to
eight weeks to get a refund claimed on a complete and accurate paper
return where all required documents are attached. For those homebuyers
filing early, the IRS expects the first refunds based on the homebuyer
credit will be issued toward the end of March.
The IRS encourages taxpayers to
use direct deposit to speed their refund. In addition, taxpayers can use
Where's My Refund? on IRS.gov to track the status of their refund.
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Electronic Filing PIN
For Filing Season 2010, the
Internal Revenue Service has implemented a new self-service
application, “Electronic Filing PIN Help” to assist taxpayers
who want to file electronically but cannot provide the necessary
information from their 2008 tax return. This application will
provide eligible taxpayers with a five digit PIN to be used to
verify their identity when electronically filing their 2009 tax
return.
Who is eligible to
obtain an Electronic Filing PIN?
Anyone who filed a Form
1040, Form 1040A, Form 1040EZ or Form 1040-SS (PR) for Tax Year
2008 that was processed by December 13, 2009, is eligible to
obtain an Electronic Filing PIN.
Why do I need an
Electronic Filing PIN?
If you are filing
electronically and do not have the Adjusted Gross Income or PIN
from your 2008 tax return, you may use the Electronic Filing PIN
to verify your identity.
How can I obtain an
Electronic Filing PIN?
Go to the
Electronic
Filing PIN- Help tool or access a touch-tone self-service
system by calling 1-866-704-7388.
You will need to provide
the following information to obtain an Electronic Filing PIN.
• Your Social
Security Number (or Individual Taxpayer Identification
Number)
• Your First and Last Name
• Your Date of Birth
• Your Filing Status
• Your complete mailing address (as it appeared on your 2008
tax return)
Where do I enter the
Electronic Filing PIN?
You should enter the
Electronic Filing PIN, in the space indicated “Prior Year
PIN/Electronic Filing PIN” when filing your return.
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Higher Standards to Boost Protections and Service for Taxpayers,
Increase Confidence in System, Yield Greater Compliance with Tax Laws
With more than 80 percent of American households using a tax preparer or
tax software to help them prepare and file their taxes, higher standards
for the tax preparer community will significantly enhance protections
and service for taxpayers, increase confidence in the tax system and
result in greater compliance with tax laws over the long term.
To bring immediate help to taxpayers this filing season, the IRS also
announced a sweeping new effort to reach tax return preparers with
enforcement and education. As part of the outreach effort, the IRS is
providing tips to taxpayers to ensure they are working with a reputable
tax return preparer.
"As tax season begins, most Americans will turn to tax return preparers
to help with one of their biggest financial transactions of the year.
The decisions announced today represent a monumental shift in the way
the IRS will oversee tax preparers," said IRS Commissioner Doug Shulman.
"Our proposals will help ensure taxpayers receive competent, ethical
service from qualified professionals and strengthen the integrity of the
nation's tax system. In addition, we are taking immediate action to step
up oversight of tax preparers this filing season.”
Based on the results of the Return Preparer Review released today, the
IRS recommends a number of steps that it plans to implement for future
filing seasons, including:
| Requiring all paid tax
return preparers who must sign a federal tax return to register with
the IRS and obtain a preparer tax identification number (PTIN).
These preparers will be subject to a limited tax compliance check to
ensure they have filed federal personal, employment and business tax
returns and that the tax due on those returns has been paid. |
| Requiring competency tests
for all paid tax return preparers except attorneys, certified public
accountants (CPAs) and enrolled agents who are active and in good
standing with their respective licensing agencies. |
| Requiring ongoing
continuing professional education for all paid tax return preparers
except attorneys, CPAs, enrolled agents and others who are already
subject to continuing education requirements. |
| Extending the ethical rules
found in Treasury Department Circular 230 -- which currently only
apply to attorneys, CPAs and enrolled agents who practice before the
IRS -- to all paid preparers. This expansion would allow the IRS to
suspend or otherwise discipline tax return preparers who engage in
unethical or disreputable conduct. |
Currently, anyone may prepare a
federal tax return for anyone else and charge a fee. While some
preparers are currently licensed by their states or are enrolled to
practice before the IRS, many do not have to meet any government or
professionally mandated competency requirements before preparing a
federal tax return for a fee.
First Step: Letters to 10,000
Preparers
The IRS is sending letters to
approximately 10,000 paid tax return preparers nationwide. These
preparers are among those with large volumes of specific tax returns
where the IRS typically sees frequent errors. The letters are intended
to remind preparers to be vigilant in areas where the errors are
frequently found, including Schedule C income and expenses, Schedule A
deductions, the Earned Income Tax Credit and the First Time Homebuyer
Credit.
Thousands of the preparers who receive these letters will also be
visited by IRS Revenue Agents in the coming weeks to discuss their
obligations and responsibilities to prepare accurate tax returns. This
is part of a broader initiative by the IRS to step up its efforts to
ensure paid tax return preparers are assisting clients appropriately.
Separately, the IRS will be conducting other compliance and education
visits with return preparers on a variety of issues.
In addition, the IRS will more widely use investigative tools during
this filing season aimed at determining tax return preparer
non-compliance. One of those tools will include visits to return
preparers by IRS agents posing as a taxpayer.
During this effort, the IRS will continue to work closely with the
Department of Justice to pursue civil or criminal action as appropriate.
Steps Taxpayers Can Take Now
to Find a Preparer
In addition to the stepped-up
oversight of preparers, Shulman also announced a new outreach effort to
help make sure taxpayers choose a reputable preparer this filing season.
That’s particularly important because taxpayers are legally responsible
for what is on their tax returns -- even if those returns are prepared
by someone else.
“Taxpayers should protect themselves from unscrupulous preparers,”
Shulman said. “There are some simple steps people can take to choose a
reputable tax preparer.”
Most tax return preparers are professional, honest and provide excellent
service to their clients. Shulman offered the following points for
taxpayers to keep in mind when selecting a tax return preparer:
| Be wary of tax preparers
who claim they can obtain larger refunds than others. |
| Avoid tax preparers who
base their fees on a percentage of the refund. |
| Use a reputable tax
professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around months or
years after the return has been filed to answer questions about the
preparation of the tax return. |
| Check the person’s
credentials. Only attorneys, CPAs and enrolled agents can represent
taxpayers before the IRS in all matters, including audits,
collection and appeals. Other return preparers may only represent
taxpayers for audits of returns they actually prepared. |
| Find out if the return
preparer is affiliated with a professional organization that
provides its members with continuing education and other resources
and holds them to a code of ethics. |
Resources for Taxpayers this
Filing Season
This filing season, the IRS has
many free resources to help taxpayers prepare and file their returns.
IRS.gov has a variety of features to help taxpayers. There’s a special
section to help taxpayers get information on a variety of Recovery tax
benefits. The web site also has information for people who lost a job or
experienced financial problems in 2009.
IRS.gov also has information to help people track their refund.
IRS.gov will once again host the IRS Free File program, which allows
virtually everyone to file their taxes for free through the web site.
Free File and the rest of the IRS e-file program will open later this
month.
The IRS
Reminds Tax-Exempt Organizations of All Sizes to File the Form 990 on
Time to Preserve Their Tax Exempt Status
 Tax-exempt
organizations should make sure they file their annual information form
on time. In 2010 the tax-exempt status of any non-profit that has not
filed the required form in the last three years will be revoked.
The
Pension Protection Act of 2006 requires that non-profit
organizations that do not file a required information form for three
consecutive years automatically lose their Federal tax-exempt status.
This requirement has been in effect since the beginning of 2007.
A list of
revoked organizations will be available to the public, as well as state
charity and tax officials on this website.
If an
organization loses its exemption, it will have to reapply with the IRS
to regain its tax-exempt status. Any income received between the
revocation date and renewed exemption may be taxable.
Small
non-profit organizations with annual receipts of $25,000 or less can
file an electronic notice, Form 990-N (e-Postcard). They will need only
a few basic pieces of information to file: the organization’s employer
identification number, its tax year, legal name and mailing address, any
other names used, an Internet address if one exists, the name and
address of a principal officer and a statement confirming the
organization's annual gross receipts are normally $25,000 or less.
Tax-exempt
organizations with annual receipts above $25,000 are required to file
the Form 990 or the Form 990-EZ annually. Private foundations file Form
990-PF. Churches and integrated auxiliaries of churches are not required
to file Form 990-series returns or notices.
Form
990-series returns and e-Postcards, are due by the 15th day of the 5th
month after an organization’s tax year ends.
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Standard Deduction Increases for Most
Taxpayers
Nearly two out of three taxpayers choose
to take the standard deduction rather
than itemizing deductions such as
mortgage interest and charitable
contributions. The basic standard
deduction is:
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$11,400 for married couples filing a
joint return and qualifying widows
and widowers, a $500 increase
compared with 2008 |
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$5,700 for singles and married
individuals filing separate returns,
up $250 |
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$8,350 for heads of household, up
$350. |
Higher amounts apply to blind people and
senior citizens. The standard deduction
is often reduced for a taxpayer who
qualifies as someone else’s dependent.
In addition, eligible taxpayers can
further increase their standard
deduction by any of the following three
deductions:
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State or local real estate taxes
paid in 2009 |
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A net disaster loss reported on Form
4684 and |
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State or local sales or excise taxes
on the purchase of a qualifying new
motor vehicle. |
Use new Schedule L, Standard Deduction
for Certain Filers, to claim these
additional deductions. |
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Most Workers Need to File New Schedule M; Making Work Pay Credit
Offers Tax Savings Up to $800
Two special tax credits offer taxpayers
an opportunity to lower their tax bill or increase their refunds
this filing season. Both credits are claimed on new Schedule M,
Making Work Pay and Government Retiree Credits.
The making work pay credit helps
millions of workers and self-employed individuals, while the
government retiree credit especially targets former government
workers who aren’t receiving Social Security benefits. Income limits
apply to the making work pay credit but not to the government
retiree credit. Both credits are refundable –– meaning that those
eligible can get them even if they owe no tax. Here are further
details on each of these credits.
Making Work Pay Credit
Most eligible taxpayers qualify for the
maximum making work pay credit of $800 for a married couple filing a
joint return or $400 for other taxpayers. The credit equals 6.2
percent of earned income up to the maximum amount. Thus, any
eligible couple whose earned income is $12,903 or more qualifies for
the $800 maximum credit. Other taxpayers qualify for the $400
maximum if their earned income is $6,451 or more.
For most workers, the credit is based on
the taxable wages reported to them on Forms W-2. Self-employed
individuals figure the credit using the net profit or loss they
receive from a business or farm. Additional calculations are
necessary for some taxpayers, including those who have net business
losses, wages from work performed while a prison inmate or foreign
earned income. More information, including a worksheet, can be found
in the instructions for Schedule M.
Some taxpayers are not eligible for the
making work pay credit, including:
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Joint filers whose modified adjusted
gross income (MAGI) is $190,000 or more.
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Other taxpayers whose MAGI is
$95,000 or more.
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Anyone who can be claimed as a
dependent on someone else’s return.
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A taxpayer who doesn’t have a valid
social security number.
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Joint filers, if neither spouse has
a valid Social Security number.
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Nonresident aliens.
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Other taxpayers qualify for the credit
but must reduce the amount of the credit they claim, including:
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Joint filers whose MAGI is more than
$150,000 but less than $190,000.
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Other taxpayers whose MAGI is more
than $75,000 but less than $95,000.
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Taxpayers who received an economic
recovery payment. This special $250 payment was made during 2009
to recipients of Social Security benefits, supplemental security
income (SSI), railroad retirement benefits or veterans
disability compensation or pension benefits.
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Taxpayers who claim the government
retiree credit. |
See Schedule M and its instructions for
details.
Though all eligible taxpayers must file
Schedule M to claim the making work pay credit, most workers got the
benefit of this credit through larger paychecks, reflecting reduced
federal income tax withholding during 2009.
Government Retiree Credit
This credit is designed to provide a
benefit equivalent to the economic recovery payment to those
government retirees who did not qualify for these payments. Retired
federal, state or local government employees who receive pensions in
2009, based on work not covered by Social Security, are eligible to
claim this credit. The credit is $250. For joint filers the credit
is $500 if both spouses are retired government employees who receive
pensions based on work not covered by Social Security. The credit
cannot be claimed by an individual if he or she received an economic
recovery payment during 2009. See Schedule M and its instructions
for details.
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