Sunday, September 28, 2008

October 15 Deadline Nears; Don’t Let Stimulus Payment Pass You by

Boss TweedOctober 15 Deadline Nears; Don’t Let Stimulus Payment Pass You by

IR-2008-109, Sept. 23, 2008

WASHINGTON — The Oct. 15 deadline to file a 2007 income tax return and to receive an economic stimulus payment this year is fast approaching.

This is the deadline for the estimated 4.3 million retirees and disabled veterans who may be eligible to receive a stimulus payment but who normally don’t file a tax return.

It’s also the deadline for the approximately 10 million people who earlier this year received extensions to file their 2007 income tax return.

“Don’t let the economic stimulus payment pass you by,” said IRS Commissioner Doug Shulman. “If you want the payment this year, you should file by Oct. 15. We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.”

The IRS has accounted for nearly 80 percent of the Social Security and Veterans Affairs beneficiaries initially identified as potentially eligible.

The IRS has yet to hear from an estimated 4.2 million people who receive certain Social Security benefits and 178,000 who receive certain Veterans Affairs benefits. The agency twice has sent to this group letters that enclosed a Form 1040A, a sample tax form and instructions for sending the tax return to the IRS. If these instructions have been misplaced, the fastest way to obtain a Package 1040A-3 is to go to or to local IRS offices. There are more than 400 local offices nationwide where people can get assistance in preparing the return as well. A return also can be prepared and submitted for free through Free File which is available at

People must file a tax return in order to receive an economic stimulus payment even if they normally are not required to file a return.

For eligible individuals, the Economic Stimulus Act of 2008 provided for stimulus payments of up to $600 ($1,200 for married couples) or the amount of the taxpayer’s 2007 net income tax liability, whichever is less. There also is a $300 payment for each qualifying child.

There is an income phase-out, starting at adjusted gross income amounts of $75,000 for single taxpayers and $150,000 for married taxpayers.

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income. Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits. Also, those who are dependents or eligible to be dependents on another’s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.

The IRS has partnered with numerous organizations, including AARP, Center on Budget and Policy Priorities, National Council on Aging, Community Action Partnership, United Way, National League of Cities, National Disability Institute and National Community Tax Coalition. These organizations also are conducting outreach efforts to older Americans and veterans.

Also, each year, there are approximately 10 million taxpayers who request an extension from the April 15 deadline to file their tax return. The extension applies only to filing a return, not to paying any taxes owed. Oct. 15 is a final deadline for these extension taxpayers to avoid any penalties. They, too, may be eligible for the economic stimulus payment but must file a 2007 return by Oct. 15 to receive the payment this year.

By law, the IRS cannot disperse any economic stimulus payments after Dec. 31. However, people who may be eligible for an economic stimulus payment can claim a credit in 2009 by filing a 2008 income tax return.

As of Aug. 29, the IRS has issued $93 billion in economic stimulus payments to 114.8 million individuals and families.

Those who already have filed a 2007 tax return but who have not yet received an economic stimulus payment, can check on the status of your payment by going to “Where’s My Economic Stimulus Payment?” on the Web site.

People also can call 1-866-234-2942 and, after selecting English or Spanish language, should press 2 to check on the status of the stimulus payment. People will need their Social Security Number (the one listed first on the 2007 return), filing status (single, married, etc) and the number of exemptions claimed on the return.

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Stephen Martinez E.A.

Tax Office

Saturday, September 27, 2008

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

Boss TweedTax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

IR-2008-106, Sept. 16, 2008

WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

  • Applies to home purchases after April 8, 2008, and before July 1, 2009.
  • Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
  • Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on, the IRS Web site.

If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.

Q. Which home purchases qualify for the first-time homebuyer credit?

A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.

Q. How much is the credit?

A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Q. Are there income limits?

A. Yes. The credit is reduced or eliminated for higher-income taxpayers.

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

  • Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
  • You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
  • You stop using your home as your main home.
  • You sell your home before the end of the year.
  • You are a nonresident alien.
  • You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
  • Your home financing comes from tax-exempt mortgage revenue bonds.
  • You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

*If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
  • *If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
  • *If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
  • *If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

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Stephen Martinez E.A.

Tax Office

Thursday, September 11, 2008

People Can Avoid Common Errors that Delay Stimulus Payments

Adding MachinePeople Can Avoid Common Errors that Delay Stimulus Payments

IR-2008-103, Sept. 9, 2008

WASHINGTON — People who are awaiting an economic stimulus payment or who have yet to file can avoid common errors that may delay their payment. They also can use the IRS Web site to answer most common questions.

The Internal Revenue Service, which is still issuing economic stimulus payments, has been studying trends and common issues in filing errors and questions posed by people calling its customer service telephone lines.

The most common question posed to the IRS is from people wondering when they will receive their stimulus payment. The question can be answered easily by going to and using the “Where’s My Economic Stimulus Payment?” Web tool.

Here’s how to avoid common mistakes:

File only one tax return — People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the Oct. 15 deadline approaches for filing a return in 2008.

List qualifying income — Some people are listing their monthly income instead of annual income. People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly). The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay.

Review your tax liability — Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer’s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of “qualifying income” from specific sources, they would be eligible for $300 ($600 for married couples). There also is a $300 payment for each qualifying child.

Amended returnGenerally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other “qualifying income.” While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009.

Use most current address — People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS.

People must file a 2007 tax return by Oct. 15 in order to receive the economic stimulus payment this year, even if they normally do not have a filing requirement because their income is too low or not taxable. The IRS already has issued 90 percent of the economic stimulus payments but will continue to issue payments through December.

For people who filed a 2007 tax return eight to 12 weeks ago but who have not received a payment, the quickest and easiest way to track the status of the payment is to go to “Where’s My Economic Stimulus Payment?” on The online tool will report when the payment has been issued. People will need their Social Security number, their filing status and the number of exemptions claimed on their tax return to use this tool.

The IRS online tool also can report other issues, such as ineligibility because income was too high or the returning of an undeliverable payment to the IRS.

The economic stimulus payment begins to phase out for individuals whose income is $75,000 or more and for joint returns with income of $150,000 or more. To be eligible, a person cannot be a dependent or eligible to be a dependent of another person. To be eligible, an individual must have a valid Social Security number unless his or her spouse serves in the military. Supplemental Security Income (SSI) does not count as “qualifying income” for stimulus payment purposes.

The biggest mistake of all would be failing to file a 2007 return in order to receive the stimulus payment, especially for people who are eligible but who do not normally file a tax return because their income is low or nontaxable. People in this category can use a Form 1040A, provide a little information to complete the return and send it to the IRS by Oct. 15. People also are urged to help friends, family or neighbors who may be in this category and unaware of their eligibility.

People who do not file a tax return by Oct. 15 can still obtain their economic stimulus payments when they file their 2008 tax return. If they wait until next year to file, their payments will be based on their 2008 income and personal situations rather than on 2007 information.

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Stephen Martinez E.A.

Tax Office

Tuesday, September 9, 2008

Nicolas Cage Settles with IRS

Bird CageNicolas Cage Settles with IRS

Sept. 5, 2008

LOS ANGELES -- Nicolas Cage, who plays a jaded hit man in his new movie opening Friday, Bangkok Dangerous, has agreed to pay substantial back taxes and penalties to the U.S. Internal Revenue Service, which said that for years he improperly deducted personal expenses.

Nicolas Cage has agreed to pay substantial back taxes and penalties to the U.S. Internal Revenue Service.

In papers filed in U.S. Tax Court, Cage and his Los Angeles-headquartered Saturn Productions said they would pay $666,000, plus unspecified interest. Nearly one-fifth of the base amount, or $99,000, is an "accuracy-related" penalty for "negligence or disregard of the rules."

Forbes was the first to report in February that Cage, under his legal name of Nicolas Coppola, and his company filed parallel U.S. Tax Court cases contesting IRS determinations that he wrongly wrote off $3.3 million in personal expenses from 2002 to 2004, including limos, meals, gifts, travel and his Gulfstream 1159A turbojet. The IRS was seeking a total of $1.8 million in back taxes and penalties, plus interest. However, because of double counting, the amount actually at issue, exclusive of interest, was likely closer to $1 million.

At the time, Cage's business manager, Samuel J. Levin, defended the deductions as "customary in the entertainment industry" and based in part on the actor's "security needs."

Cage's representatives did not respond immediately on Friday to requests for comment on the settlements. The 20% penalty in the settlements, which a Tax Court judge approved in early August, makes clear that the IRS considered the matter a case of noncriminal negligence rather than something more grave.

By Tax Court standards, the Cage complaints made for colorful reading, especially about his opulent lifestyle. He listed $185,000 in employment taxes for household help while the IRS disputed upward of $500,000 spent on his oft-photographed jet. In 2004, the year he starred in National Treasure, Cage listed his 2004 taxable income as $17 million. (The IRS thought it was $18.5 million.)

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Stephen Martinez E.A.

Tax Office