Deducción Especial por Impuestos Sobre la Venta para Compras de Vehículos Disponible hasta Fin del 2009

Dec. 17, 2009 WASHINGTON — Con los modelos del 2010 llegando a las salas de exposición de los distribuidores, el Servicio de Impuestos Internos (IRS) recuerda a los contribuyentes que el comprar un nuevo automóvil, camioneta ligera, casa rodante o motocicleta podría calificarles para una deducción especial por los impuestos estatales y locales sobre la venta e impuestos de consumo en sus declaraciones de impuestos del 2009. Compras hechas después del 16 de febrero del 2009 y antes del 1 de enero del 2010, calificarán para esta deducción en virtud del Acta de Recuperación y Reinversión Americana del 2009 (ARRA). La deducción está limitada a los impuestos estatales y locales sobre la venta e impuestos de consumo y cuotas similares pagadas por hasta $49,500 del precio de compra de un nuevo vehículo. La deducción se reduce para contribuyentes que declaran en conjunto con ingresos brutos ajustados modificados (MAGI) entre $250,000 y $260,000 y otros contribuyentes con MAGI entre $125,000 y $135,000. Los contribuyentes con ingresos mayores no califican. Los contribuyentes que hacen compras de vehículos nuevos calificados este año pueden calcular la deducción con la ayuda de la Hoja de Trabajo 10 de la Publicación 919 del IRS, ¿Cómo Ajusto Mi Retención? (en inglés, How Do I Adjust My Withholding?). Las líneas 10a hasta 10k de la hoja de trabajo muestran cómo tomar en cuenta las compras que sobrepasan el límite de $49,500, así como también las deducciones reducidas para los contribuyentes con niveles de ingresos más altos. Esta deducción especial está disponible independientemente de si los contribuyentes detallan las deducciones en sus declaraciones de impuestos. Los contribuyentes que no detallan sus deducciones sumarán este monto adicional a la deducción estándar en su declaración de impuestos del 2009. Para quienes tienen preguntas acerca de la deducción por impuestos sobre la venta y otras cuotas, estas preguntas y respuestas podrían ayudarles. Un video en español en el canal del IRS en Youtube.com y podcasts de audio en español también están disponibles para ayudar a los contribuyentes a aprovechar al máximo la deducción.

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Esteban Martínez

Tax Office

IRS Reminds Car Shoppers about 2009 Tax Break

Dec. 17, 2009 WASHINGTON — The Internal Revenue Service today reminds individual taxpayers who are considering buying a new car that they have until Dec. 31 to take advantage of a tax break that may not be around in 2010. Taxpayers who buy a qualifying new motor vehicle this year after Feb. 16 can deduct the state or local sales or excise taxes they paid on the first $49,500 of the purchase price. Qualifying motor vehicles include new passenger automobiles, light trucks, motorcycles, and motor homes. Individuals who itemize and those who take the standard deduction can benefit from this tax break. In states without a sales tax, other taxes or fees can qualify if they are assessed on the purchase of the vehicle and are based on the vehicle’s sales price or as a per unit fee. The deduction is reduced for joint filers with modified adjusted gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI between $125,000 and $135,000. Taxpayers with higher incomes do not qualify. Taxpayers who take the standard deduction need to complete Schedule L and attach it to Form 1040 or Form 1040A to increase the standard deduction by the allowable amount of state or local sales or excise taxes paid on the purchase of the new vehicle. Also, check the box on line 40b on Form 1040 or line 24b on Form 1040A. Individuals who itemize should include the allowable amount of state or local sales or excise taxes from the purchase of the vehicle on Form 1040, Schedule A.

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Stephen Martinez

Tax Office

First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify

IR-2009-108, Nov. 24, 2009 WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers. The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase. The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase. But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns. A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

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Stephen Martinez

Tax Office

Se Extiende Crédito de Primeros Compradores de Vivienda Hasta el 30 de abril de 2010; Algunos Dueños Actuales de Vivienda Ahora También Califican

IR-2009-108SP, 24 de noviembre, 2009 WASHINGTON –– Una nueva ley que tomó efecto el 6 de noviembre extiende el crédito para primeros compradores de vivienda por cinco meses y expande los requisitos de elegibilidad para los compradores. El Acta de Asistencia a Trabajadores, Dueños de Vivienda, y Negocios del 2009 extiende la fecha límite para compras calificadas de vivienda del 30 de noviembre de 2009, hasta el 30 de abril de 2010. Además, si un comprador entra en un contrato obligatorio para el 30 de abril de 2010, el comprador tiene hasta el 30 de junio de 2010, para finalizar la compra. El crédito máximo sigue constante en $8000 para un primer comprador de vivienda – es decir, un comprador que no ha sido dueño de una residencia principal durante los tres años hasta la fecha de compra. Sin embargo la nueva ley también provee un crédito para “residentes de largo-tiempo” de hasta $6500 a otros que no califican como “primeros compradores de vivienda”. Para calificar de esta forma, un comprador tiene que haber sido dueño y utilizado la misma vivienda como una vivienda principal o primordial por al menos cinco años consecutivos del período de ocho años culminando en la fecha de compra de la nueva vivienda como su residencia principal. Para todas las compras calificadas en el 2010, los contribuyentes tienen la opción de reclamar el crédito en su declaración de impuestos del 2009 o del 2010. Una nueva versión del Formulario 5405, Crédito para Primer Comprador de Vivienda, estará disponible en las próximas semanas. Un contribuyente que compra una vivienda después del 6 de noviembre necesita usar la nueva versión del Formulario 5405 para reclamar el crédito. De igual forma, los contribuyentes que reclaman el crédito en su declaración de impuestos del 2009, independientemente de la fecha que compró la vivienda, deben utilizar la nueva versión del Formulario 5405. Contribuyentes reclamando el crédito en su declaración del 2009 no podrán presentar su declaración electrónicamente. Estos contribuyentes necesitarán presentar una declaración en papel. Un contribuyente que compra una vivienda en o antes del 6 de noviembre y escoge reclamar el crédito en una declaración original o enmendada del 2008 puede continuar usando la versión actual del Formulario 5405.

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Esteban Martinez

Tax Office

Expanden Beneficio Tributario Disponible para Primeros Compradores de Viviendas para 2009

Expanden Beneficio Tributario Disponible para Primeros Compradores de Viviendas para 2009

IR-2009-14SP, 25 de febrero de 2009 WASHINGTON – El Servicio de Impuestos Internos (IRS) anunció hoy que los contribuyentes que califiquen para el crédito para primeros compradores de viviendas y compren una vivienda este año antes del 1 de diciembre, tienen disponible una opción especial para reclamar el crédito ya sea en sus declaraciones de impuestos del 2008 que se presentan para este 15 de abril o en sus declaraciones de impuestos del 2009 el año entrante. Los contribuyentes calificados que compren una vivienda este año antes de diciembre 1, pueden obtener hasta $8000, o $4000 para personas casadas que presentan una declaración por separado. “Para quienes compran una vivienda por primera vez este año, esta función especial puede poner dinero en sus bolsillos ahora mismo en lugar de esperar otro año para reclamar el crédito tributario“, dijo el Comisionado del IRS Doug Shulman. “Este importante cambio brinda a los compradores de viviendas calificados dinero en efectivo que no tienen que pagar en devolución”. El IRS ha colocado una versión revisada del Formulario 5405, Crédito para Primeros Compradores de Viviendas (Form 5405, First-Time Homebuyer Credit en inglés) en IRS.gov. El formulario revisado incorpora provisiones del Acta de Recuperación y Reinversión Americana del 2009. Las instrucciones para el Formulario 5405 revisado brindan información adicional acerca de quién puede y quién no puede reclamar el crédito, límites de ingresos, y el pago en devolución del crédito. Este año, los contribuyentes calificados que compran una vivienda antes del 1 de diciembre del 2009, pueden reclamar el crédito ya sea en su declaración de impuestos del 2008 o la del 2009. No tienen que pagar en devolución el crédito, siempre y cuando la vivienda continúe siendo su hogar principal durante 36 meses después de la fecha de compra. Pueden reclamar el 10 por ciento del precio de compra hasta $8000, o $4000 para personas casadas que presentan una declaración por separado. La cantidad del crédito empieza a disminuir para los contribuyentes cuyo ingreso bruto ajustado es más de $75,000, $150,000 para declaraciones conjuntas. Para propósitos del crédito, usted es considerado el comprador de una vivienda por primera vez si usted, y su cónyuge de estar casado, no fueron propietarios de ningún otro hogar principal durante el periodo de tres años que finaliza con la fecha de compra. El IRS también anunció a los contribuyentes que la ley no afecta a aquellas personas que compraron una vivienda después del 8 de abril del 2008, y antes o en el mismo 31 de diciembre del 2008. Para estos contribuyentes que están reclamando el crédito en sus declaraciones de impuestos del 2008, el crédito máximo continúa siendo el 10 por ciento del precio de compra, hasta $7,500, o $3,750 para personas casadas que presentan una declaración por separado. Además, el crédito para estas compras del 2008 debe ser pagado en devolución en 15 cuotas iguales durante un plazo de 15 años, empezando con el año tributario 2010.

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Esteban Martinez

Tax Office

Ernst & Young Partners Convicted of Tax Fraud

New York

(May 11, 2009)

Two current and two former Ernst & Young partners were found guilty of tax fraud and conspiracy charges related to tax shelters.

The four men were charged in May 2007 with developing and marketing tax shelters for wealthy individuals who were making over $10 million a year. They set up a group at E&Y in 1998 to develop tax shelters known at first as VIPER (Value Ideas Produce Extraordinary Results) and later as SISG (Strategic Individual Solutions Group).

A Manhattan jury found the four men guilty on all counts after a two-month trial. They included former tax partners Robert Coplan of Plano, Texas, and Brian Vaughn of Calhoun, La. The other two partners are on administrative leave: Martin Nissenbaum of Brooklyn and Richard Shapiro of Rye Brook, N.Y.




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Stephen Martinez E.A.

Tax Office

Tax Preparer and large Refunds

Arizona Man Sentenced to Prison for Preparing Fraudulent Tax Returns

On April 13, 2009, in Phoenix, Ariz., Huy Phuoc Nguyen, of Glendale, Ariz., was sentenced to 21 months in prison. Nguyen pleaded guilty on November 17, 2008, to one count of aiding and assisting in the presentation of false and fraudulent income tax returns. According to court documents, beginning as early as 2001 to 2005, Nguyen owned and operated Lucky Immigration and Income Tax Service in Phoenix. While operating his business, Nguyen personally prepared tax returns for members of the Vietnamese community. On nearly three dozen tax returns, Nguyen fraudulently represented the taxpayers’ deductions and expenses and understated the taxpayers’ income. Some of these fraudulent representations provided tax credits for education, children and earned income to which the clients were not entitled to receive. Nguyen attempted to conceal his fraudulent practice by listing his ex-wife as the tax preparer for the return. The fraudulent tax returns from Nguyen resulted in a tax loss of over $90,000 to the United States.






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Stephen Martinez E.A.

Tax Office

Verizon Wireless Doing Its Best To Strangle SMS Content

Verizon Wireless Doing Its Best To Strangle SMS Content


Verizon Wireless has put the word out that it’s going to start charging 3 cents for every mobile-terminated text message that goes across its network starting November 1, on top of the existing fees it already charges. See blog by MobHappy

That “poof!” sound you just heard was the SMS content and marketing business in the US vanishing in a cloud of stupidity.

RCR reports “Verizon Wireless representative Brenda Raney said the new fee was necessary to cover the carrier’s overhead in delivering MT messages.” She also added this is the first increase levied by Verizon since 2003 — but what’s changed at Verizon that this huge increase is necessary to “align with [its] costs”? Per-message charges would naturally generate higher revenues as usage grows. It’s hard to see how Verizon’s cost for processing inbound messages could suddenly leap so high that it would have to raise the fee to “align” it.

Also keep in mind that Verizon subscribers get charged for incoming messages, whether on a per-message basis, or as a part of their bundle.

If this charge sticks, it will decimate the commercial SMS business in the United States. Content providers will have to try and suck up the charges, or decide to cut off customers of the country’s second-biggest operator. Neither choice is appealing, and it’s doubtful that very many business plans can adapt to either one. Are many people making more than 3 cents per sent message in revenue?





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Stephen Martinez E.A.

Tax Office

California Mortgage Forgiveness Debt Relief Law

Mortgage Forgiveness Debt Relief Law

The California mortgage forgiveness debt relief law is effective immediately. It is similar to federal law, but with important differences.

The California law covers qualified debt forgiven in 2007 and 2008, and it:

• Limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately.
• Limits debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately.

The federal law covers qualified debt forgiven from 2007 through 2012,¹ and it:

• Limits the amount of qualified principal residence indebtedness to $2,000,000 for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1,000,000 for taxpayers who file as married filing separately.
• Does not limit the debt relief amount: it only limits the indebtedness amount used to calculate the debt relief amount.

Claiming mortgage forgiveness debt relief for a previously filed 2007 tax return

If you already filed your 2007 tax return, file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief.

If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).

If the amount of debt relief for federal purposes is the same as the California limit, no adjustment is necessary on Schedule CA (540/540NR). On Form 540X, simply enter on line 2e, column (B), the amount originally entered on Schedule CA (540/540NR) line 21f, column (C).

Claiming mortgage forgiveness debt relief on an original 2007 or 2008 tax return

You can file for debt relief on your original 2007 or 2008 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return.

If the amount of debt relief for federal purposes is more than the California limit, include the amount in excess of the California limit on Schedule CA (540/540NR) line 21f, column (C).

If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR).

You must include a copy of your federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) with your original California tax return.

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Stephen Martinez E.A.

Tax Office

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

October 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 IRS.gov 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 IRS.gov.

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 IRS.gov 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

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

Tax 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 IRS.gov, 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

People Can Avoid Common Errors that Delay Stimulus Payments

People 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 IRS.gov 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 return — Generally, 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 IRS.gov. 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

Nicolas Cage Settles with IRS

Nicolas 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

Is Your Hobby a For-Profit Endeavor?

Is Your Hobby a For-Profit Endeavor?



FS-2008-23, June 2008


The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby.


Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”


Taxpayers may need a clearer understanding of what constitutes an activity engaged in for profit and the tax implications of incorrectly treating hobby activities as activities engaged in for profit. This educational fact sheet provides information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.


Is your hobby really an activity engaged in for profit?


In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.


The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

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Does the time and effort put into the activity indicate an intention to make a profit?
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Do you depend on income from the activity?
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If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
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Have you changed methods of operation to improve profitability?
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Do you have the knowledge needed to carry on the activity as a successful business?
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Have you made a profit in similar activities in the past?
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Does the activity make a profit in some years?
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Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).


If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.


What are allowable hobby deductions under IRC 183?


If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.


Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:


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Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
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Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
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Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.






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Stephen Martinez E.A.

Tax Office