Federal Tax Collection Rules & Procedures :: Internet Resource Links

Federal Tax Collection Rules & Procedures :: Internet Resource Links:
Purpose of this public resource: This site provides an organized assembly of many rules and procedures that govern the collection of unpaid federal tax. Electronic links connect researchers to the full text of many statutes, regulations, Internal Revenue Manuals, US Attorney Manuals, IRS Forms, US Government internet resources, several published cases and other materials. Source: irscollectionlaw.com

Chief Counsel Notices
Chief Counsel Bulletins
CODES - transcript and processing, 2011
FOIA Request Forms, IRS
Innocent Spouse, IRS self-help tool and information
Installments, IRS self-help tool and information
Internal Revenue Code
Internal Revenue Manuals
IRS Forms
IRS Publications
IRS Reading Room (notices, CCA, training material, etc.)
Treas. Regulations
US Attorney Manuals, index
Criminal Tax Manual (DOJ)

Indian-Spiced Roasted Chickpeas

Indian-Spiced Roasted Chickpeas
Makes: 1 servings for 6 people

Ingredients:
2 cups chickpeas, (red kidney beans, white navy beans, black beans, red chili beans, cannellini white kidney beans) rinsed and drained
1 tablespoon lemon juice
1 tablespoon olive oil
1 1/2 teaspoons ground cumin
1/2 teaspoon ground curry
1/2 teaspoon salt
1/4 teaspoon ground cinnamon
Black pepper to taste
Cayenne to taste
Crushed Red Peppers to taste
Ground Fenugreek to taste

Wasabi to taste
Cilandro to taste

Directions
1. Preheat oven to 425 F

2. Combine all the ingredients in a bowl; toss well

3. Spread on a foil-lined baking sheet and roast, tossing halfway through, for 20 to 25 minutes, or until the chickpeas are dark brown in spots

4. Let cool 

5. (Can be kept in an airtight container in the fridge for up to 4 days)

Nutrition Facts
Servings Per Recipe: 1 servings for 6 people
Amount Per Serving: 183 cal, Fat total 5g, sat. fat 1g, carb 29g, fiber 6g, protein 6g

Source: Fitness Magazine

50% Bonus Depreciation Permanently Extended: Faster Tax Write-Off for Equipment

50% Bonus Depreciation: Faster Tax Write-Off for Equipment 

• 50% Bonus depreciation in some form has been in place since 2008 during President George W. Bush’s tenure in the White House to help stimulate a lagging economy.
• Under "Bonus Depreciation", companies can deduct an additional 50% of the cost of an equipment purchase in the first year of service, on top of the regular depreciation schedule.
• 50% Bonus depreciation is eligible in 1st year of service only.
• Bonus depreciation must be taken: 
• AFTER any elected §179 deduction and 
• BEFORE any regular depreciation.
• 50% Bonus depreciation must be on: 
• New property, 
• NOT Used property, and 
• New-in-Service to the taxpayer.
• Illustration: Assume that in 2013, a taxpayer purchased new depreciable property and placed it in service. (Consider elected §179 expensing to the cost of the property to be 20,000).
• Property’s cost is 100,000, and it is 5-year property subject to 200%/DB/Half-Year (MACRS method/convention).
• §179 elected is 20,000
• Additional first-year (50% Bonus depreciation) depreciation allowed is 40,000. [50% x (100,000 - 20,000)] 
• The remaining 40,000 (100,000 - 20,000 - 40,000) of the cost of the property is depreciated under the rules applicable to 5-year property. 
• 8,000 is allowable as current year depreciation expense in 2013 (8,000 results from the application 200%/DB/Half-Year method and convention to the remaining 40,000). 
• Total depreciation deduction with respect to the property for 2013 is 68,000. The remaining 32,000 Adjusted Basis of the property will be recovered over the remaining life of the asset using applicable depreciation rules.
• Additional first-year depreciation deduction is allowed for both the regular tax and the alternative minimum tax (“AMT”).
• IRC §168(k). Additional first-year depreciation deduction is subject to the general rules regarding whether an item must be capitalized under §263A.
• 100% of the adjusted basis of qualified original-use property that meets the requirements for the additional first-year depreciation is eligible. 

H.R.4718 - To amend the Internal Revenue Code of 1986 to modify and make permanent bonus depreciation

Foreign Financial Asset Disclosures

Foreign Financial Asset Disclosures

• In IR-2014-73 the IRS has announced changes in two of its programs related to offshore accounts. 
• The IRS has modified the terms of the Offshore Voluntary Disclosure Program (OVDP), which allows individuals to avoid criminal prosecution if they disclose their foreign accounts and pay a substantial penalty. 
• The IRS has expanded the streamlined filing compliance process, or “streamlined procedures,” which are aimed at US taxpayers who have failed to disclose their foreign accounts but who are not willfully evading their tax obligations. These programs are part of a wider effort to stop offshore tax evasion, which includes enhanced enforcement, criminal prosecutions, and implementation of third-party reporting via the Foreign Account Tax Compliance Act (FATCA). 

Changes include:

• Additional taxpayer information requirements. 
• Taxpayers are no longer exempt due to a "risk" questionnaire and unpaid taxes of less than $1,500. Treasury Department and Department of Justice have pledged to pursue every non-compliant person. 
• Taxpayers must submit all account statements and pay the offshore penalty at the time of the OVDP application. 
• Taxpayers are allowed to submit voluminous records and supporting documents electronically rather than on paper. 
• To be in compliance when submitting an OVDP Application, accounting must be complete and accurate and payments must be made in full. 
• US Taxpayers residing in the US can be subject to a special 5% OVDP asset penalty. 
• US taxpayers living abroad may apply to have OVDP asset penalties waived. 
• Increased penalties, (27.5% to 50%), incentive for holders of hidden assets to come in sooner if they are concerned about the possibility of an investigation, for taxpayers who invest in institutions that are under DOJ federal investigation. 
• A non-willful conduct testament can assist some taxpayers with compliance. 
• Penalties can be eliminated for some non-willful taxpayers. 
• The 50% penalty is comprehensive and applies to foreign partnerships, stock holdings and all other investments. 

Foreign Account Reporting Requirements

• There are a number of reporting requirements for taxpayers with foreign accounts. 
• Affected taxpayers must fill out and attach to their 1040 tax return, Schedule B, which asks about the existence of foreign accounts, (check "Box B" Yes or No). 
• Some taxpayers have to fill out Form 8938, Statement of Foreign Financial Assets. 
• Other filing requirements apply to foreign trusts. 
• Taxpayers with foreign accounts whose aggregate value exceeds $10,000, at any time during the year, must file a Form 114, Report of Foreign Bank and Financial Accounts (FBAR) electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. 
• Failure to comply with applicable reporting requirements can result in civil and criminal penalties.

On July 1, 2014, the new information reporting regime instituted by FATCA will go into effect. Thousands of foreign financial institutions will begin to report to the IRS the foreign accounts held by US persons.

Courtesy:  MaSEA

References: CCH

IRS Offshore Voluntary Disclosure Efforts Produce $6.5 Billion; 45,000 Taxpayers Participate

Tax Implications of Internet Currencies

Tax Implications of Internet Currencies

Not surprisingly in IRS Notice 2014-21 the IRS concluded that virtual currency transactions for services and goods had tax consequences. Virtual currency is a growing digital phenomenon where internet users trade real currency for board game dollars, like Monopoly. BitCoin has the most virtual currency activity. Refer to: weusecoins.com for background about internet currency.

The IRS clearly determined this digital currency activity is a property transaction that is measured by the FMV equivalent in US Dollars. The notice contains several key declarations.

• No foreign currency gain or loss is allowed
• 1099 reporting requirements exist
• A business/hobby determination is required
• Payroll and self-employment taxes are required for services and compensation
• Sections 6662, 6721, and 6722 penalties can be applied.

IRS Notice 2014-21 was written by the division of self-employment taxes within the Chief Counsel's Office. When reviewing your internet activity keep in mind the requisites of bartering activities and retain an internet money transaction log as part of your recordkeeping.
Courtesy: Massachusetts Society of Enrolled Agents

• BitCoin received in connection with a trade or business or received as wages is subject to ordinary income treatment at time received. BitCoin held for less than a year prior to disposition may be declared short-term capital gains or foreign exchange gains, receiving ordinary income treatment. BitCoin held more than one year prior to disposition, may be declared long term capital gains (with proper records) or foreign exchange gains.
• Don’t forget to include BitCoin activity when calculating your net investment income tax (NIIT).  If you are fortunate enough to have MAGI over the threshold amounts ($200,000 Single/$250,000 MfJ), BitCoin gains may be subject to NIIT. The statutory definition for net investment income includes interest, dividends, capital gains, rental and royalty income, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to a taxpayer. BitCoin could fall into several of these categories, depending on your personal circumstances. Non-passive business income is not subject to the NIIT tax.
• Declare foreign banking activity by filing a Foreign Bank Account Report (FBAR), if necessary. US persons (citizens, residents and entities created in the US) must file the FBAR if, at any time during the year, they had a financial interest or signature authority over a foreign financial account with a value of more than $10,000. A wallet with an exchange located in a foreign country, such as Mt. Gox, (Mt. Gox was a BitCoin exchange based in Tokyo, Japan) would cause the taxpayer to be subject to the FBAR rules. Note that the reporting threshold applies to your account balance on every day of the year, not the average balance or balance on just the last day. The FBAR threshold is also crossed when multiple foreign financial accounts have an aggregate value of greater than $10,000.

IRS' "New & Improved" Taxpayer Bill of Rights

IRS' "New & Improved" Taxpayer Bill of Rights

The ten rights, IRS website, are:

1. The Right to Be Informed: Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
2. The Right to Quality Service: Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax: Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard: Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
5. The Right to Appeal an IRS Decision in an Independent Forum: Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
6. The Right to Finality: Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
7. The Right to Privacy: Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality: Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
9. The Right to Retain Representation: Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
10. The Right to a Fair and Just Tax System: Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

"The Taxpayer Bill of Rights contains fundamental information to help taxpayers," said IRS Commissioner John A. Koskinen. "These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before."

Techniques for Seeking Tax Penalty Relief

Techniques for Seeking Tax Penalty Relief
Taxpayers can request relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties in three ways, depending on their situation:

1. Before the IRS assesses a penalty, the taxpayer can file a penalty non assertion request with a paper return to request that the IRS not automatically assess a penalty.
2. After the IRS has assessed a penalty, the taxpayer can request penalty abatement, typically by writing a penalty abatement letter or by calling the IRS. Tax professionals can also request abatement using IRS e-services.
3. After the taxpayer has paid the penalty, the taxpayer can request a refund using Form 843, Claim for Refund and Request for Abatement.  The taxpayer must file the claim within three years of the return due date or filing date, or within two years of the date the penalty was paid.

Reasons to Request Abatement
Generally, relief from penalties falls into four separate categories: 

1. reasonable cause, 
2. statutory exceptions, 
3. administrative waivers, and 
4. correction of IRS error. 

Under the category of administrative waivers, the IRS may formally interpret or clarify a provision to provide administrative relief from a penalty it would otherwise assess. The IRS may address an administrative waiver in either a policy statement, news release, or other formal communication stating that the policy of the IRS is to provide relief from a penalty under specific conditions. The most widely available administrative waiver is First-Time Abatement waiver.

Penalty Abatement Request Letter - Sample

You should also complete IRS Form 843 – Claim for Refund and Request for Abatement

Date

Penalty Abatement Coordinator
Address (as stated on your IRS notice of penalty) 

Your Name
Your Address
Your Social Security Number 

RE: Request for Penalty Abatement 

Dear Sir/Madam: 

I am requesting an abatement of the penalties on the taxes that I owe. These penalties are in the total amount of  $___________, as shown by the IRS tax  notice of penalties dated ____________, which I have enclosed.  

(select one of the following options)

_____ paid my taxes late
_____ filed my taxes late
_____ did not report income  

for the following reason(s):

(In this section of your letter, describe the reason(s) that you paid your taxes late, filed your taxes late, or failed to report income. Common examples of valid reasons include the death of a family member, serious illness of you or a family member, a civil disturbance such as a tornado, flood, or fire, or any other reason that prevented you from complying with the IRS.)

.______________________________________________________

.______________________________________________________

.______________________________________________________

Please find enclosed a copy of documentation that supports my reason(s) for requesting an abatement of penalties.

(In this section of your letter, describe the type of documentation supporting the reason(s) that you paid your taxes late, filed your taxes late, or failed to report income. Examples of supporting documentation include death certificates, statements from a doctor regarding illness or a medical condition, or pictures showing your home following a fire or hurricane.)

.______________________________________________________

.______________________________________________________

.______________________________________________________

(Omit the next sentence if you cannot enclose a payment toward your taxes.  However, you should try to enclose a payment if possible.) 

Please approve my request for abatement of penalties for good cause. I also have enclosed a payment in the amount of $_____________ toward the taxes that I owe.

If you have any further questions, please feel free to contact me at __________________ (your phone number, including area code). 

Sincerely, 

(Your Signature) 

Your Name

You can only receive a penalty abatement from the IRS if you can show good or reasonable cause for being unable to pay your delinquent taxes in full.  Reasons beyond your control that made you unable to determine your tax or pay your tax even though you were using ordinary care in your business operations.

Failure-to-File-or-Pay-Penalties:-Eight-Facts

References:

Forbes.com, Reducing IRS Penalties, 09/01/2013

IRS.gov

Internal Revenue Manual - 20.1.1

The Tax Advisor, Practice & Procedures, AICPA, July 01, 2013

Please copy & distribute freely

Who is this guy named FICA?

Who is this guy named FICA?
FICA is the acronym for Federal Insurance Contributions Act. The acronym is often used in the US when referring to the combination of the Social Security tax and the Medicare tax.

Generally, all of an employee's earnings which are less than $117,000 in the calendar year 2014 are subject to payroll withholdings of 6.2% for the Social Security tax plus 1.45% for the Medicare tax. In addition, the employer is required to pay a similar amount. The result is that the employer must remit 15.3% (6.2% + 6.2% + 1.45% + 1.45%) of each employee's wages or salaries that are less than $117,000 in a year.  

A self-employed person must pay both the employee portion and the employer portion of the FICA tax.

There are specific rates that apply to an employee's annual earnings in excess of the FICA wage limit ($117,000 in 2014).

Additional Medicare Tax

Effective in 2013, the Additional Medicare Tax of 0.9% applies to earned income of more than $200,000 ($250,000 for married couples filing jointly). Employers withhold this tax on wages in excess of $200,000 regardless of an employee’s filing status.

The Additional Medicare Tax raised an individual wage earner’s portion on compensation above the threshold amounts to 2.35 percent from 1.45 percent; the employer-paid portion of the Medicare tax on these amounts remained at 1.45 percent. 

Net Investment Income Tax

Net Investment Income Tax is separate from the new Additional Medicare Tax, which also went into effect on January 1, 2013. You may be subject to both taxes, but not on the same type of income. The 0.9% Additional Medicare Tax applies to individuals’ wages, compensation, and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income.

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.

Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.

Additionally, net investment income does not include any gain on the sale of a personal residence that is excluded from gross income for regular income tax purposes. To the extent the gain is excluded from gross income for regular income tax purposes, it is not subject to the Net Investment Income Tax.

If an individual has too little withholding or fails to pay enough quarterly estimated taxes to also cover the Net Investment Income Tax, the individual may be subject to an estimated tax penalty.

Social Security Cost-of-Living-Adjustment
Publication 15 (2014), (Circular E), Employer's Tax Guide

FBAR Reporting

FBAR Reporting

• "Signature authority"... needs to be reported on electronic-FBAR even if another entity holds the assets. e.g. Fred & Wilma own an LLC 50%/50%. LLC has foreign account over $10K. Because Fred & Wilma have signature authority over account (even though neither one of their ownership's exceeds 50%) they need to file an FBAR disclosing signature authority. And of course, the LLC needs to file its own FBAR as owner of a foreign account over $10K.
• Beneficiaries of a Defined Benefit (DB) plan (pension plan) do not need to file FBAR.
• Beneficiaries of a Defined Contribution (DC) plan DO need to file FBAR.
• It doesn't matter how you acquire the funds (inheritance), if its a foreign account, needs FBAR reporting.
• Gold coins in a foreign safety deposit box do NOT need FBAR reporting. these are considered personal assets and not a foreign account.
• FBAR is not a report of income or assets, simply a report of foreign accounts.
• BitCoin (virtual currency), is reportable on FBAR -- stay tuned...
• Declare foreign banking activity by filing a Foreign Bank Account Report (FBAR), if necessary. US persons (citizens, residents and entities created in the US) must file the FBAR if, at any time during the year, they had a financial interest or signature authority over a foreign financial account with a value of more than $10,000. A wallet with an exchange located in a foreign country, such as Mt. Gox, (Mt. Gox was a BitCoin exchange based in Tokyo, Japan) would cause the taxpayer to be subject to the FBAR rules. Note that the reporting threshold applies to your account balance on every day of the year, not the average balance or balance on just the last day. The FBAR threshold is also crossed when multiple foreign financial accounts have an aggregate value of greater than $10,000.
• You do not have to have a US SSN to file an FBAR. alternatively, you can use Block 4 for Passport # or Gov't issue ID with explanation... (use Block 3 for US SSN or Tax ID).
• Canadian RSP accounts (IRAs) and Mexican AFORE accounts (IRAs) are FBAR reportable.
• If you don't have all necessary foreign account info by June 30th, file the FBAR with what you have, and come back later and amend once info is available. No extensions, June 30th deadline.
• FinCEN is responsible for FBAR under Title 31USC, BSA. IRS examines for FBAR compliance.
• BSA laws say; any foreign account over $10K at anytime during the year requires FBAR. FBAR attempts to track illicit foreign accounts used for money laundering, terrorism...

Question: When a preparer is willing to help clients with filing their FBAR (FinCEN Report 114) through FinCEN's BSA E-Filing System, can the preparer fill out the information online for the taxpayer?

Answer: Yes, provided the preparer registers as an institution on the BSA website. When you go to File the Report of Foreign Bank and Financial Accounts (FBAR) as an Individual, there is a note that says, “A non-individual FBAR filer, such as an attorney, CPA, or an enrolled agent filing the FBAR on behalf of a client must register to Become a BSA E-Filer and file as an institution rather than an individual.” You must Become a BSA e-Filer to register and submit forms as a business.

Furthermore, a taxpayer will use Form 114a, Record of Authorization to Electronically File FBARs, to give the preparer authority to file the FBAR on behalf of the taxpayer.

Congress Passes DATA Act

Congress Passes DATA Act
Legislation mandating detailed reporting on federal spending passed in the House of Representatives with bipartisan support this past Monday. The bill is now headed to President Obama's desk to be signed into federal law.

The legislation, which was backed by the American Institute of CPAs, would build the necessary infrastructure to standardize and publish federal spending data, putting into law several key elements of President Obama's May 2013 Open Data Policy.

The DATA Act improves upon the Federal Funding Accountability and Transparency Act, which then-Senator Obama sponsored in 2006, by mandating the adoption of consistent government-wide data standards. The legislation would use technology such as Extensible Business Reporting Language, or XBRL, in financial reporting on government spending, making it more open and accessible.

The bill would require each government program to disclose agency expenditures that enables taxpayers and policy makers to track Federal spending more efficiently.

Additionally, the DATA Act will establish government-wide data standards for financial data and provide consistent, reliable, and searchable spending data that is displayed accurately for taxpayers and policy makers on USASpending.gov.  By making government spending information more easily accessible, the legislation will also increase stewardship to detect and prevent waste, fraud, and abuse while enabling individuals to more easily access and understand how Federal tax dollars are being spent. 

For related information, visit: US Government Spending

Courtesy: MaSEA