Wednesday, January 23, 2013

IRS Steps Up Enforcement and Audits of High-Income Taxpayers

Washington, D.C. (January 22, 2013)
By Michael Cohn

The Internal Revenue Service reported that audits of individuals topped 1 million in fiscal year 2012 for the sixth year in a row, a coverage rate of 1.03 percent of all tax returns filed, while audits in the upper income ranges remained substantially higher than other categories.

The IRS noted that it increased its examinations across all categories of business returns by more than 12 percent in fiscal 2012, with the largest increases coming in audits of flow-through entities, which include partnerships and Subchapter S corporations. Coverage rates exceeded 20 percent for the largest corporations.

The IRS also collected more than $50 billion in enforcement revenue in fiscal 2012, the third year in a row topping that figure. "The 2012 numbers were lower than 2010 and 2011, which were unusual years with enforcement dollars helped by large numbers of offshore tax cases coming in," the IRS noted.

More than 38,000 disclosures of offshore accounts have been made to date through the IRS's offshore voluntary disclosure programs, the IRS noted. In addition, the economic slowdown contributed to lower enforcement figures, as most enforcement dollars collected resulted from audits of returns for years during the slowdown.

Another factor behind the fiscal 2012 numbers reflected changes in agency staffing and budget resources, the IRS noted. After a nearly flat budget in fiscal 2011, the IRS's fiscal 2012 budget was cut $305 million. The reduction affected the level of staffing available to deliver service and enforcement programs. Overall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6 percent in the past year.

Also in fiscal year 2012, the IRS continued to confront the challenge of refund fraud caused by identity theft. The IRS more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area. As a result of these increased efforts, the IRS in fiscal 2012 was able to prevent the issuance of more than 3 million fraudulent refunds worth more than $20 billion, an increase from approximately 1.8 million refunds worth about $14 billion the previous year.

On the service side, the IRS said it saw continued strong growth in electronic filing by individuals, as the e-filing rate in fiscal 2012 exceeded 80 percent for the first time. Taxpayer interest in online interactions continued to increase as well, with Web page visits on IRS.gov up nearly 17 percent to 372 million.


See article at Accounting Today here.

Taxpayers Reported Billions in Potentially Erroneous Noncash Charitable Contributions

Washington, D.C. (January 15, 2013)

By Michael Cohn

Approximately 60 percent of taxpayers who claim large-dollar noncash charitable contributions on their returns may not be complying with federal reporting requirements, according to a new report, with potentially erroneous contributions estimated at $3.8 billion in 2010.

The report, from the Treasury Inspector General for Tax Administration, found that the Internal Revenue Service is not ensuring that taxpayers are complying with reporting requirements for claiming noncash charitable contributions. An estimated 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in tax year 2010, which resulted in an estimated $1.1 billion reduction in tax.

"Taxpayers can generally deduct noncash charitable contributions made to qualifying organizations during the tax year on their Federal tax returns," said TIGTA Inspector General J. Russell George in a statement. "However, taxpayers who do not comply with the reporting requirements for noncash contributions could be incorrectly reducing their tax liabilities and receiving tax refunds to which they are not entitled," he added.

Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

TIGTA made six recommendations for improvement to the IRS. IRS management agreed with three of the six recommendations, and partially agreed with one.

"We agree with a number of recommendations in the report and continue to make improvements in this area," wrote Peggy Bogadis, commissioner of the IRS's Wage and Investment Division. "For example, we agree with your recommendation to clarify reporting instructions provided to taxpayers who are required to complete and submit Form 883, Noncash Charitable Contributions. Additionally, we also agree to expand our procedures used to process tax returns claiming noncash contributions to ensure that we initiate correspondence to obtain missing Forms 8283 and/or qualified appraisals before the applicable charitable contribution is allowed."

However, Bogadis pointed out that that TIGTA's analysis of tax return data for 507 accounts identified only 55 returns, or 11 percent, with missing documentation. She noted that Math Error Authority is limited by the Tax Code, so the majority of cases that were identified do not fall under the IRS'S Math Error Authority and need to be addressed through deficiency procedures.

Read article from Accounting Today here.

Saturday, January 19, 2013

Penalty Relief for Farmers and Fishermen

http://www.accountingtoday.com/news/Penalty-Relief-for-Farmers-and-Fishermen-65404-1.html

IRS Loses Lawsuit Challenging Authority to Regulate Tax Preparers

IRS Loses Lawsuit Challenging Authority to Regulate Tax Preparers

In a stunning blow to the Internal Revenue Service's efforts to regulate the tax preparation profession, a federal judge struck down the IRS's licensing requirements for tax preparers on Friday, including testing and continuing education.

Three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.—joined forces with the Institute for Justice, a libertarian public interest law firm, in filing suit against the IRS in the U.S. District Court for the District of Columbia. 

U.S. District Court Judge James E. Boasberg ruled against the IRS and in favor of the tax preparers in enjoining the agency against enforcing its Registered Tax Return Preparer requirements.

"Today's ruling is a victory for hundreds of thousands of tax preparers across the country and the tens of millions of taxpayers who rely on them to prepare their taxes," said lead attorney Dan Alban. "This was an unlawful power grab by one of the most powerful federal agencies and thankfully the court stopped the IRS dead in its tracks. The court ruled today that Congress never gave the IRS the authority to license tax preparers, and the IRS can't give itself that power."

The opinion is available online at http://www.ij.org/images/pdf_folder/economic_liberty/irs_tax_preparers/irs-opinion-1-18-13.pdf. The court enjoined the IRS from enforcing its new licensing scheme for tax preparers. The ruling does not affect CPAs, Enrolled Agents and tax attorneys, who were exempted from the RTRP regime as they are already regulated under Circular 230 requirements.

"Through these regulations, the IRS set itself up as king and sought to license hundreds of thousands of tax preparers without being authorized to so do under the law," said Institute for Justice senior attorney Scott Bullock. "But as Judge Boasberg noted, under our system of law, 'statutory text is king.'"

Former IRS Commissioner Doug Shulman made tax preparer regulation a priority, aiming to root out tax preparers who were unqualified, filed fraudulent refund claims and even cheated clients, with the further goal of improving tax compliance. Shulman ended his term last November and is now a guest scholar at the Washington, D.C., think tank, the Brookings Institution. His successor, IRS Acting Commissioner Steven T. Miller will now have to deal with the fallout from the lawsuit.

Boasberg recognized that the IRS recently did a "flip-flop" with regard to its ability to license tax preparers, the Institute for Justice noted, declaring for years it did not have the authority to do so but only recently claiming that it did have that power. 

The IRS can appeal the ruling to the U.S. Court of Appeals for the District of Columbia Circuit. The IRS had no immediate comment on the ruling, according to IRS spokesman Dean Patterson.

"They may very well appeal, but the District Court ruled that the IRS is enjoined from enforcing the RTRP licensing regulations," said Alban. "Assuming the ruling stands, tax preparers no longer are going to need to comply with the IRS licensing requirements. It returns things to the way they were before the IRS passed those regulations in the first place. No longer do you have to get the IRS's permission to work as a tax return preparer."

He noted that the IRS's continuing education requirements only just went into effect on January 1. "The timing on this really couldn't have been any better," said Alban. "Tax preparers should be able to prepare tax returns in this 2013 tax season without getting permission from the IRS. Tens of thousands of tax preparers who would have otherwise been put out of business, including two of our clients, can now continue to prepare returns."

Read more...

Monday, January 7, 2013

IRS issues withholding tables for American Taxpayer Relief Act


IRS issues withholding tables for American Taxpayer Relief Act

On Friday, the IRS issued newly revised percentage withholding tables to implement the rates that will be in effect this year now that the American Taxpayer Relief Act, H.R. 8, has been enacted (Notice 1036, Rev. Jan. 2013, IR-2013-1). The tax rates in the tables are 10%, 15%, 25%, 28%, 33%, 35%,

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IRS issues revised withholding guidelines

IRS issues revised withholding guidelines - http://sbne.ws/r/cfVJ

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Saturday, January 5, 2013

Spreading Financial Well-Being


Spreading Financial Well-Being

Financial-well-beingIn my professional travels I meet individuals from all over who know about the AICPA's financial literacy programs and use our resources in many creative ways.  While some are CPAs, the majority is not, and yet each is equally committed to improving the financial well-being of their loved ones, friends and communities.  If I had a dollar for every time someone sang "Feeeeed the PIG!" to me after seeing our campaign promotional items on a conference display table, I just might have enough money to pay off my student loans.  (I never get tired of this serenade!)

Here are some of the many ways these free resources are being used:

Me Save?: A community college teacher in Maryland uses this interactive feature on the Feed the Pig website in freshman orientation classes to help her students identify what type of spenders they are and assist with the delivery of their financial literacy program.  By taking these steps and following the corresponding tips, they are on the right path to change their spending habits and increase savings.

Tweens Curriculum:  This free, math-based curriculum for 4-6 graders includes a teacher's guide full of classroom activities, an online game and a take home activity for students to share with their families to reinforce the savings message at home.  Here are just two real-world examples of how this is used outside the typical school classroom:

  • A high school teacher in a small New England school encourages groups of 2-3 students to select an activity and present to students in a lower grade.  She says that having the "big kids" teach the younger students impresses the 4-6 graders more than if their teacher taught the same lesson.
  • A local non-profit copies the one-page take home activity and includes it in goodie bags for parents who attend their Healthy Families programs.

Fuzzy Pigs and other Promotional Items: We give these small fuzzy pigs (aka weepuls) out at the annual the National JumpStart Teachers Conference and the California JumpStart Teachers Conference.   Teachers love to use these during their financial education lessons as prizes for the students.

Weekly Savings Tip:  Although the Feed the Pig campaign targets 25-34 year olds, many of the campaign's messages are relevant for all ages.  The Weekly Savings Tip, which is sent out via email every Monday, provides easy to follow guidance for managing money.  Many subscribers forward this to their children and friends.  One woman, who I would guess to be over 70, told me she faithfully forwards each tip to the members of her women's group.  She reports that they all find it to be very useful information.

360 Retirement Calculator: A little closer to home, I have a friend who uses this calculator on a monthly basis to ensure he's on track with his retirement savings, as well as before he makes any major changes in his retirement planning.  He's set to retire at 55!

How do you use the free financial education tools offered by the AICPA and your state CPA society? 

Melora C. Heavey, Senior Manager - Communications, American Institute of CPAs.Melora manages the CPA profession's volunteer effort, 360 Degrees of Financial Literacy, and the award-winning public service campaign, Feed the Pig.  She serves as the staff liaison to the National CPA Financial Literacy Commission, the leadership body and primary spokespeople for 360 Degrees of Financial Literacy.

Related articles

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AICPA: Americans Have Money Moves to Make in Wake of Fiscal Cliff


AICPA: Americans Have Money Moves to Make in Wake of Fiscal Cliff 

American Institute of CPAs publishes first consumer book – Save Wisely, Spend Happily – to help Americans Navigate Personal Finances  
Published January 03, 2013

New York (Jan. 3, 2013) – Washington has dealt with the fiscal cliff. Now it's your turn.

About three quarters of American households will have smaller paychecks this year because the federal government will take a bigger tax bite. Congress, as part of the fiscal cliff legislation, chose not to extend a 2 percent payroll tax holiday that has been in effect for two years. That means someone who earns $50,000 will take home about $1,000 less. Other workers might want to consider changes to their retirement planning because of the fiscal cliff legislation. It removes some restrictions and makes it possible for more people to convert a traditional 401(k) to a Roth 401(k).

"We've moved from a fiscal cliff to a financial reset," said Sharon Lechter, CPA, author and editor of a new book – Save Wisely, Spend Happily -- published today by the American Institute of CPAs. "We all need to assess our financial situations and determine what changes we need to make in saving and spending to adjust to the new realities created by this legislation."

For most Americans, such financial focus hasn't been a priority. According to a recent poll conducted by Harris Interactive for the AICPA, only 36 percent of U.S. adults planned to set a personal financial goal for the New Year. And about half of them likely will fall short. In the past five years, 43 percent of those who made a personal finance-related New Year's resolution failed to achieve it or failed to sustain their success. What's more, 61 percent of U.S. adults either have no budget or only have an informal one they track in their heads.

The AICPA published Save Wisely, Spend Happily to help Americans get on better financial footing and do the analysis necessary in the wake of the fiscal cliff. In the book, Lechter, an international best-selling author and financial literacy expert, weaves together seasoned, straightforward advice about saving, spending, budgeting and financial planning from 125 CPAs across the country.

"CPAs have seen it all – mistakes, missteps misfortune and recovery – and have the knowledge to help Americans build and repair their financial foundations," Lechter said. "In Save Wisely, Spend Happily we have combined more than 1,000 years of their expertise into a money manual with a simple message: You don't have to be a miser to thrive. You just have to make mindful choices about your money."

"This book has tips that can benefit anyone," Lechter continued. "There's no upsell or agenda. Just seasoned insight from trusted advisors."

Lechter offers these tips to help Americans get started:

  • Review your expenses. With a cut in take home pay, you need to ensure you're making every dollar count –- and that it counts toward goals you want to achieve.

  • Have the money talk. Talk with your spouse or partner to ensure you're aligned in your views about money, which can be the root of significant challenges in relationships. You need to make sure that you're heading toward similar goals or at least understand the goals you each prioritize.
  • Ask for help. If you don't know how to move forward, ask. According to the Harris survey, only 13 percent of Americans seek advice from a financial professional. Managing money can have many complexities and sometimes a professional can best put you on the right path.

To learn more about Save Wisely, Spend Happily, visit www.savewiselyspendhappily.org. The book is available in paperback and Kindle format through Amazon.com. All proceeds go to support financial education.

Survey Methodology
Harris Interactive conducted the telephone survey on behalf of the American Institute of CPAs within the United States between December 6 and 9, 2012, reaching a nationally representative sample of 1,010 adults aged 18 and older by landline and mobile phone.

For the full results of the Harris survey, including methodology, contact Jonathan B. Cox with AICPA Media relations at 919.402.4499 or jcox@aicpa.org.



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What the Fiscal Cliff Deal Really Means for Taxes and Spending


What the Fiscal Cliff Deal Really Means for Taxes and Spending

Everyone trying to sort out the fiscal cliff deal is getting hopelessly tangled in budget baselines.  Are taxes going up? Or are they going down?  There is an easier way: Forget the multiple baselines. Just look at what is happening to total spending and total revenues.

My Tax Policy Center colleagues ran the numbers and they tell two important stories—one about budget policy and the other about budget politics.

The policy story is simple: The cliff deal (plus expected economic growth) does begin to reduce the deficit to levels approaching sustainability, though the red ink begins to flow faster after about five years.  And since TPC's projections include some optimistic assumptions about both spending and tax revenue, deficits could be even higher than the estimates.

The political picture is even more challenging.  Under the agreement, revenues in 10 years will reach about 19.4 percent of Gross Domestic Product, and that is at the very high end of what most Republicans say is tolerable. Spending will exceed 22 percent, at the low end of what many Democrats think is acceptable given the aging of the population.  Looking at taxes and spending as a share of GDP shows just how tough it will be for the parties to reach a fiscal compromise.

Fiscal cliff GDP 1-3-13Under the agreement, in 2013 the federal government is projected to spend about 22.7 percent of GDP, and it will collect about 16.6 percent of GDP in taxes and other revenues. That spending level is not very different from what the Congressional Budget office figured in its most likely fiscal scenario back in August, but taxes are about 0.3 percent of GDP higher.

The deficit in 2013 under the cliff deal: A steep 6.1 percent of GDP.

But the picture changes after the first year.  Revenue rises and spending falls, in part because CBO figures the economy is improving. Under the cliff agreement, in 2017 spending falls to 21.5 percent of GDP, while revenues rise to about 19 percent for a deficit of about 2.5 percent of GDP, which is not too bad. Spending is about 1 percentage point lower and taxes about 0.7 percent higher than under CBO's fiscal projection.

By 2022, spending will rise to about 22.3 percent of GDP and revenues to about 19.4 percent, and the deficit will be back up to 2.9 percent of GDP.  However, spending will be about 1.8 percent lower than under CBO's most likely scenario, and revenues about 0.8 percent higher.

Both spending and taxes will be lower under the cliff deal than under President Obama's 2013 budget.

Some important technical points:  These estimates exclude interest. They also assume that the temporary tax provisions (the so-called extenders) and the temporary Medicare physician payment adjustment (the doc fix) expire in a year as the law states. If not, or if they are not paid for some other way, long-term revenues would be lower and spending quite a bit higher. Similarly, if the automatic spending cuts known as the sequester are repeatedly postponed and not replaced with other spending reductions, the deficit would also balloon.

There are lots of ways to look at this agreement but this one—spending and revenues as a share of the economy—can clarify a lot that is hidden under all those baselines.


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TPC Tax Calculator Shows What Avoiding Fiscal Cliff Means for Taxpayers


TPC Tax Calculator Shows What Avoiding Fiscal Cliff Means for Taxpayers

Following Congress's last minute passage of legislation averting a plunge off the fiscal cliff, TPC has released a new Tax Calculator that lets users examine the effects of the American Taxpayer Relief Act of 2012 (ATRA). As with earlier versions, the new calculator compares income and payroll tax liabilities under alternative scenarios:

  1. ATRA, the tax law that will apply in 2013.
  2. 2012 tax law (with an AMT patch). This is what you paid in 2012, including the now-expired payroll tax cut and a patched AMT.
  3. Pre-ATRA 2013 tax law. This is what you would have paid if Congress hadn't acted and we'd gone over the fiscal cliff for all of 2013.

(More details on these plans, including their treatment of the AMT and estate taxes, are available here.)

To make things easy, you can look at ready-made examples or create your own case.


a non-elderly childless couple

a couple with a child in college

a couple with two children under age 13

a single person

a single mother with two children

a couple over age 65

Check out our new calculator and see how the different tax plans would affect real families.


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IRS Proposes Regulations Creating Truncated Taxpayer ID Number (NPRM REG-148873-09)


IRS Proposes Regulations Creating Truncated Taxpayer ID Number (NPRM REG-148873-09)

The IRS has proposed regulations creating a new taxpayer identification number, which would be known as a truncated taxpayer identification number, or TTIN. This number would be available as an alternative to the Social Security number, the IRS individual taxpayer identification number, or the IRS adoption taxpayer identification number for use by the filer of certain information returns to identify the person being furnished a statement. The TTIN displays only the last four digits of an individual's identifying number and is shown in the format XXX-XX-1234 or ***-**-1234.

Code Sec. 6109 authorizes the IRS to require the inclusion of an identifying number in returns, statements, or other documents as a means of securing proper identification of the filer. The IRS announced a pilot program in Notice 2009-93 , I.R.B. 2009-51, 863, extended and modified in Notice 2011-38 , I.R.B. 2011-20, 785, which authorized filers of certain information returns to truncate an individual payee's nine-digit identifying number on specified paper payee statements furnished for 2009 through 2012. The proposed regulations would implement this program, which was conceived in response to concerns about the risk of identity theft. The risk of misappropriation and subsequent misuse of identification numbers has been reported to be a significant problem with paper payee statements.

Commonly used payee statements for which paper copies are issued include Forms 1098 (Mortgage Interest Statement), 1099-MISC (Miscellaneous Income), 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRS, Insurance Contracts, Etc.), 1099-S (Proceeds from Real Estate Transactions), 1099-C (Cancellation of Debt) and 1098-T (Tuition Statement). The TTIN would not be used on Form W-2 (Wage and Tax Statement), which requires the employee's name and Social Security number, nor is truncation possible for any number assigned to taxpayers other than individuals, such as an employer identification number.

The TTIN may be used only on payee statements, whether furnished by paper or electronic means. Its use is optional. A filer may not use a TTIN on an information return filed with the IRS, nor may a filer truncate its own identifying number of information returns or payee statements. Notice 2011-38 will be obsolete on the date these proposed regulations become final.

Proposed Regulations, NPRM REG-148873-09, 2013FED ¶49,558

Other References:

Code Sec. 6042

CCH Reference – 2013FED ¶35,867C

Code Sec. 6043

CCH Reference – 2013FED ¶35,885CC

Code Sec. 6044

CCH Reference – 2013FED ¶35,909C

Code Sec. 6045

CCH Reference – 2013FED ¶35,926BC

CCH Reference – 2013FED ¶35,926DC

CCH Reference – 2013FED ¶35,929AC

CCH Reference – 2013FED ¶35,929BC

Code Sec. 6049

CCH Reference – 2013FED ¶36,033C

Code Sec. 6050A

CCH Reference – 2013FED ¶36,041C

Code Sec. 6050E

CCH Reference – 2013FED ¶36,121C

Code Sec. 6050N

CCH Reference – 2013FED ¶36,300BC

Code Sec. 6050P

CCH Reference – 2013FED ¶36,311BC

Code Sec. 6050S

CCH Reference – 2013FED ¶36,319AE

CCH Reference – 2013FED ¶36,319AK

Code Sec. 6109

CCH Reference – 2013FED ¶36,964I

Tax Research Consultant

CCH Reference – TRC FILEBUS: 12,106.15


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CCH Tax Briefing and CCH’s Explanation and Analysis of American Taxpayer Relief Act of 2012 Now Available


CCH Tax Briefing and CCH's Explanation and Analysis of American Taxpayer Relief Act of 2012 Now Available

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, permanently extending the tax cuts under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16 ) and the Jobs Growth and Tax Relief Reconciliation Act of 2003 (JGTRRA) (P.L. 108-27 ), as originally extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (P.L. 111-312 ), more commonly known as the Bush-era tax cuts. After a weekend of furious negotiations, the Senate passed the bill in the early hours of New Year's Day by an 89-to-8 vote, and the House followed late in the evening, passing the bill by a 257-to-167 vote. The majority of the tax cuts were passed in the same form as they existed since passage in 2001 or 2003, with the exception of tax rate increases on the income, capital gains and dividends of individuals making more than $400,000 and families earning more than $450,000 and a small increase in the maximum estate tax rate, now at 40 percent.

The legislation also includes extensions of several other provisions that expired at the end of 2011 or 2012, including many that were not subject to the original sunset provision contained in EGTRRA and JGTRRA , and also included a permanent "patch" for the AMT.

Since 1913, CCH has provided tax professionals with the most comprehensive, ongoing, practical and timely analysis of the federal tax law. In the spirit of this tradition, CCH is providing you with a complete analysis of the American Taxpayer Relief Act of 2012.

CCH's Award-Winning Briefing Now Available

CCH's Tax Briefing covers the entirety of the American Taxpayer Relief Act of 2012, including a description of how we got where we are today, in-depth analysis of the provisions, helpful insights on the operation of the new law, and thoughts about where we may go from here. The Tax Briefing is located at http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf.

CCH's Explanation and Analysis Now Available

CCH's American Taxpayer Relief Act of 2012: Law, Explanation & Analysis, covering the provisions contained within the law passed by Congress in the late hours of January 1, 2013, is now available to CCH subscribers. Loaded with practical guidance, examples, planning strategies and opportunities, this exclusive, comprehensive resource provides detailed analysis of these tax law changes and what they mean to tax practitioners and their clients.

Client Letter Now Available

A customizable, sample client letter that can be used to inform clients of the new law and what is contained therein is also available. To access this client letter, click on the link https://tax.cchgroup.com/SmartDocs/DocDisplay.aspx?docCode=A100&brand=&title=CCH+Client+Letter+Toolkit .


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President Signs Fiscal Cliff Legislation


President Signs Fiscal Cliff Legislation

(January 2, 2013) Following Congressional passage on January 1, 2013, the President signed the American Taxpayer Relief Act of 2012 (H.R. 8 ) on January 2, 2013. January 2, 2013 therefore becomes the enactment date for the legislation, although almost all of the provisions have a retroactive effective date to either January 1, 2012 or January 1, 2013. The act permanently extends the tax cuts from the 2001 and 2003 tax acts with a few exceptions. A 39.6 percent tax rate would apply to single filers with incomes over $400,000 ($450,000 for joint filers). The phase-out of itemized deductions and exemptions would also return for single filers with incomes over $250,000 ($300,000 for joint filers). The estate tax exemption amount would be retained at an inflation adjusted $5,000,000 but the maximum tax rate is increased to 40 percent. The top capital gains rate would also be increased to 20 percent for higher income taxpayers. The bill would also permanently extend alternative minimum tax relief with inflation adjustments to the exemption amount.

Five-year extensions are included for the American Opportunity Tax Credit and certain parts of the Child Tax Credit and the Earned Income Tax Credit. Most of the provisions that had expired at the end of 2011 were extended for two years; however, a number of the expired provisions were not included in the extension. The more popular individual and business regularly expiring provisions were extended, and several extended provisions also included modifications. Bonus depreciation and small business expensing of capital acquisitions were included in the extensions.

A number of non-tax issues were also addressed in the legislation, including unemployment, health, agriculture and sequestration issues. The payroll tax reduction that had been in place for the last couple of years was not included.


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IRS Provides Updated Withholding Guidance for 2013 (IR-2013-1; Notice)


IRS Provides Updated Withholding Guidance for 2013 (IR-2013-1; Notice)

The IRS has released the updated income-tax withholding tables for 2013 reflecting changes by Congress. The updated tables, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

For 2013, the employee tax rate for Social Security increases to 6.2 percent. The Social Security wage base limit increases to $113,700. Employers should implement the 6.2-percent employee Social Security tax rate as soon as possible, but not later than February 15, 2013. After implementing the new 6.2-percent rate, employers should make an adjustment in a subsequent pay period to correct any underwithholding of Social Security tax as soon as possible, but not later than March 31, 2013.

The Medicare tax rate is 1.45 percent each for the employee and employer, unchanged from 2012. There is no wage base limit for Medicare tax. Beginning in 2013, the additional Medicare tax of .09 percent must be withheld from employee wages that exceed $200,000 in a calendar year. The additional Medicare tax must be withheld beginning in the pay period in which the employee's wages exceed $200,000 and continue until the end of the calendar year. The additional Medicare tax is only imposed on the employee.

As always, the IRS urges workers to review their withholding every year and, if necessary, fill out a new Form W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

IR-2013-1, 2013FED ¶46,226

Notice 1036, Early Release Copies of the 2013 Percentage Method Tables for Income Tax Withholding, 2013FED ¶46,227

Other References:

Code Sec. 3401

CCH Reference – 2013FED ¶151

CCH Reference – 2013FED ¶33,546.021

Code Sec. 3402

CCH Reference – 2013FED ¶33,544.20

Tax Research Consultant

CCH Reference – TRC PAYROLL: 6,054.05


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Thursday, January 3, 2013

Fiscal Cliff Legislation – American Taxpayer Relief Act of 2012


Fiscal Cliff Legislation – American Taxpayer Relief Act of 2012

Congress has passed legislation to address the "fiscal cliff" and the President is expected to sign it. If you are interested in the details of what stayed in and what was left out, a link to the text of the bill that was passed by the House today is below.

Read the text of the American Taxpayer Relief Act of 2012 here:
American Tax Relief Act of 2012


Original Page: http://taxtrials.com/?p=1928

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Wednesday, January 2, 2013

Key Points in Bill Passed by Congress to Avert US 'Fiscal Cliff'

The U.S. House of Representatives approved a Senate bill on Tuesday night to avert $600 billion in automatic tax increases and spending cuts known as the "fiscal cliff."


Here are details:


* Postpones the first installment of automatic spending cuts for two months while Congress works on a plan replace them.

* Raises $620 billion in revenue over 10 years through a series of tax increases on wealthier Americans.

* Permanently extends tax cuts enacted in 2001 under former Republican President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.

* Above that income threshold, capital gains and dividends tax rates would return to 20 percent, from 15 percent.

* Caps personal exemptions and itemized deductions for income above $250,000, or $300,000 per household.

* Raises estate tax rate to 40 percent for estates of more than $10 million per couple, up from the current level of 35 percent.

* Includes a permanent fix for the alternative minimum tax.

* Extends unemployment insurance benefits for one year for 2 million people.

* Extends child tax credit, earned income tax credit, and tuition tax credit for five years.

* Extends research and experimentation tax credit, and the wind production tax credit through the end of 2013. Extends 50 percent bonus depreciation for one year.

* Avoids a cut in payments to doctors treating patients on Medicare - the "doc fix."

 

http://www.cnbc.com/id/100348205

Tuesday, January 1, 2013

Here's What the 'Fiscal Cliff' Deal Looks Like

The U.S. Senate was expected to vote early on Tuesday on a deal to avert $600 billion in automatic tax increases and spending cuts in the "fiscal cliff" that could hobble the economy if allowed to take effect this week.

If this alternative to the fiscal cliff passes the Senate, the House of Representatives could also vote on the measure later on Tuesday.

Here are details of the deal, according to congressional sources:

* Postpones for two months the start of $1.2 trillion in automatic spending cuts over 10 years, known as the "sequester." For those two months, $24 billion in savings would be substituted. Half of those savings would be split between defense and non-defense programs. The other half includes new revenues.

* Raises $600 billion in revenue over 10 years through a series of tax increases on wealthier Americans.

* Permanently extends tax cuts made in 2001 by Republican President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.

* Above that income threshold, capital gains and dividend tax rates would return to 20 percent from 15 percent.

* Caps personal exemptions and itemized deductions for income above $250,000, or $300,000 per household.

* Raises estate tax rate to 40 percent for estates of more than $10 million per couple, up from the current level of 35 percent.

* Includes a permanent fix for the alternative minimum tax.

* Extends unemployment insurance benefits for one year for 2 million people.

* Extends child tax credit, earned income tax credit, and tuition tax credit for five years.

* Extends research and experimentation tax credit, and the wind production tax credit through the end of 2013. Extends 50 percent bonus depreciation for one year.

* Avoids a cut in payments to doctors treating patients on Medicare - the so-called "doc fix."

* Temporarily extends farm programs.

* Cancels a cost-of-living raise for members of Congress.

http://www.cnbc.com/id/100346815

Senate Approves 'Fiscal Cliff' Deal; House Meets New Year's Day

The Senate moved the U.S. economy back from the edge of a "fiscal cliff" on Tuesday, voting to avoid imminent tax hikes and spending cuts in a bipartisan deal that could still face stiff challenges in the House of Representatives.

In a rare New Year's session at around 2 a.m. EST (0700 GMT), senators voted 89-8 to raise some taxes on the wealthy while making permanent low tax rates on the middle class that have been in place for a decade.

But the measure did little to rein in huge annual budget deficits that have helped push the U.S. debt to $16.4 trillion.

The agreement came too late for Congress to meet its own deadline of New Year's Eve for passing laws to halt $600 billion in tax hikes and spending cuts which strictly speaking came into force on Tuesday.

But with the New Year's Day holiday, there was no real world impact and Congress still had time to draw up legislation, approve it and backdate it to avoid the harsh fiscal measures.

That will need the backing of the House where many of the Republicans who control the chamber complain that President Barack Obama has shown little interest in cutting government spending and is too concerned with raising taxes.

All eyes are now on the House which is to hold a session on Tuesday starting at noon (1700 GMT).

Obama called for the House to act quickly and follow the Senate's lead.

"While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay," he said in a statement.

"There's more work to do to reduce our deficits, and I'm willing to do it. But tonight's agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans," Obama said.

(Read more: Here's What the 'Fiscal Cliff' Deal Looks Like)

Members were thankful that financial markets were closed, giving them a second chance to return to try to head off the fiscal cliff.

But if lawmakers cannot pass legislation in the coming days, markets are likely to turn sour. The U.S. economy, still recovering from the 2008/2009 downturn, could stall again if Congress fails to fix the budget mess.

"If we do nothing, the threat of a recession is very real. Passing this agreement does not mean negotiations halt, far from it. We can all agree there is more work to be done," Majority Leader Harry Reid, a Democrat, told the Senate floor.

A new, informal deadline for Congress to legislate is now Wednesday when the current body expires and it is replaced by a new Congress chosen at last November's election.

The Senate bill, worked out after long negotiations on New Year's Eve between Vice President Joe Biden and Senate Republican Minority Leader Mitch McConnell, also postpones for two months a $109 billion "sequester" of sweeping spending cuts on military and domestic programs.

It extends unemployment insurance to 2 million people for a year and makes permanent the alternative minimum tax "patch" that was set to expire, protecting middle-income Americans from being taxed as if they were rich.

'Imperfect Solution'

The tax hikes do not sit easy with Republicans but conservative senators held their noses and voted to raise rates for the rich because not to do so would have meant increases for almost all working Americans.

"It took an imperfect solution to prevent our constituents from a very real financial pain, but in my view, it was worth the effort," McConnell said.

House Speaker John Boehner - the top Republican in Congress - said the House would consider the Senate deal. B ut he left open the possibility of the House amending the Senate bill, which would spark another round of legislating.

(Read More: Stocks End Up 1% on 'Cliff' Progress)

"The House will honor its commitment to consider the Senate agreement if it is passed. Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members ... have been able to review the legislation," Boehner and other House Republican leaders said in a statement.

Boehner has struggled for two years to get control over a group of several dozen Tea Party fiscal conservatives in his caucus who strongly oppose tax increases and demand that he force Obama to make savings in the Medicare and Social Security healthcare and retirement programs.

A campaign-style event held by Obama in the White House as negotiations with Senate leaders were taking place on Monday may have made it more difficult for Republicans to back the deal. In remarks to a group of supporters that resembled a victory lap, the president noted that his rivals were coming around to his way of seeing things.

"Keep in mind that just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans. Obviously, the agreement that's currently being discussed would raise those rates and raise them permanently," he said to applause before the Senate deal was sealed.

Obama's words and tone annoyed Republican lawmakers who seemed to feel that the Democrat was gloating.

"That's not the way presidents should lead," said Republican Senator John McCain, Obama's rival in the 2008 election.

A deal with the House on Tuesday, while uncertain, would not mark the end of congressional budget fights. The "sequester" spending cuts will come up again in February as will the contentious "debt ceiling," which caps how much debt the federal government can hold.

Republicans may see those two issues as their best chance to try to rein in government spending and clip Obama's wings at the start of his second term.

http://www.cnbc.com/id/100345848