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Under IRS regulations, businesses that trade in machinery or equipment for which they claimed bonus depreciation may qualify for another bonus depreciation deduction on the remaining depreciable basis if they swap for like-kind property that also is eligible for bonus depreciation. In effect, the business gets two bonus depreciation deductions for itsexpenditure on the traded-in property.

© 2011 Thomson Reuters/RIA. All rights reserved.

Tags: bonus depreciation, IRS regulations

Beginning July 1, 2011, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect. Thus, the FUTA tax rate, before consideration of state unemployment tax credits, is now 6.0%. Employers need to separately track FUTA taxable wages paid before July 1, 2011, and FUTA taxable wages paid after June 30, 2011, since the FUTA tax rates are different during those two periods. Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on Aug. 1, 2011, but that payment is based on taxable wages paid through June 30, 2011, so it will be computed using the 6.2% FUTA tax rate. However,the payment after that is due on Oct. 31, 2011, and it will be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

© 2011 Thomson Reuters/RIA. All rights reserved.

Tags: FUTA surtax, tax rates

The IRS has announced that the optional mileage allowance for owned or leased autos (including vans,pickups or panel trucks) is increased 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use,and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also increases 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

© 2011 Thomson Reuters/RIA. All rights reserved.

Tags: optimal mileage allowance increase

It’s clear that the IRS has turned to technology to boost compliance. And with more than 200 million notices on the way again this year, practitioners can expect more clients to look to them for support.

To provide value all year long, firms need to manage their clients’ post-filing activity. For most, that means reacting to notices. While it’s necessary, it’s hardly proactive. And many clients either don’t provide all of the notices they receive or provide them with inadequate time for practitioners to prepare a response before IRS deadlines.

Tax firms can prepare now for increasing IRS activity. By managing their clients’ post-filing activity and using best practices to address any issues or notices that arise, practitioners can respond quickly, monitor progress, and stay current on shifting IRS practices.

© Accounting Today, 2011.

Tags: IRS notices, taxpayer compliance data

Where the IRS is concerned, there is no defined busy season. IRS compliance systems and staff work year-round on tax compliance issues, consistently monitoring activity and issuing notices.

The IRS sends certain types of notices throughout the year. For example, in May and June, practitioners can expect notices related to the tax returns they filed for their clients before the April 18, 2011, deadline. The following is a sampling of such notices.

CP23/24, Estimated Tax Discrepancies. Retirees, small-business owners, or investors who make estimated tax payments may receive this notice when estimated payments reported on their return were incorrect. Practitioners should review payments their clients made to the IRS to see whether the payments were posted correctly. If so, practitioners can facilitate payment of the balance or help dispute the account discrepancy.

CP14, Balance Due. Clients who did not pay an outstanding balance when they filed their return will receive this notice. Practitioners can help their clients make arrangements to satisfy the balance with the IRS.

CP2000, Underreported Income Adjustment. Investors, small businesses or taxpayers filing for early refunds may receive this notice when income was not reported on their return (most likely from 2009). Practitioners may need to reconcile the discrepancy and respond to the IRS, or investigate whether the income reported is their client’s income. It may have resulted from identity theft or an incorrectly filed information statement.

CP88, Refund Hold Due to Missing Tax Return. Clients may receive this notice when the IRS has not received their tax return. This is more common for returns filed by paper or for e-filed returns that the IRS rejected with no follow-up. Practitioners should immediately file the return. If there is a balance due, practitioners can consider submitting a penalty abatement request with the return if there is reasonable cause or if the return was filed but not recorded by the IRS.

Letter 3850/1-B, Appointment Letters for Employment Tax Audit for the IRS National Research Program. Employers receive this notice when they are selected for an IRS audit to determine whether their contractors are actually employees. Practitioners should review their clients’ use of independent contractors.

CP12/CP13, Math Error Notices (IRS adjusted a filed return due to a miscalculation, changing the refund). Form 1040 filers may receive this notice when the IRS recalculates their return. Practitioners should recheck the return for accuracy, and if they dispute the adjustment, contact the IRS to correct the error.

CP11 series. Clients may receive these notices when they take new IRS credits or the Earned Income Credit, or when the IRS adjusts the return due to a discrepancy. The IRS thinks there was an error on the return, resulting in a balance due. Practitioners may need to prove a credit to the IRS or help their client make arrangements for the unpaid balances.

© Accounting Today, 2011.

Tags: IRS notices

In a recent speech, IRS Commissioner Doug Shulman indicated that the IRS is also looking ahead, analyzing taxpayer compliance data to recognize trends and improve compliance practices. He explained that the agency created an office of compliance data analytics that helps create hypotheses for compliance improvement, launches pilots to test hypotheses, and then implements enhancements if pilots are successful. The ultimate goal, Shulman said, is to take advantage of technology to modernize IRS processes.

Shulman also described an upgrade to its Customer Account Data Engine to take effect for the 2012 tax filing season. The agency’s core account database, which holds basic taxpayer information such as current account balance and payments, will move its batch processing cycle from a weekly or bi-weekly basis to a daily basis, he said. For practitioners, the upgrade means faster refunds for clients, and dealing with IRS agents who have up-to-date information, he explained.

Among IRS efforts to improve compliance through technology, the most striking statistics involve changes to the notice system. In 2001, the IRS issued about 30 million notices. From 2001 to 2009, volume increased 670 percent to 201 million notices. In that same time period, the number of individual and business taxpayers increased by only 10 percent, from 141 million to 155 million.

This year, it’s likely that the IRS will exceed the 201 million notices issued in 2009. For practitioners and their clients, this means more contact with the IRS.

© Accounting Today, 2011.

Tags: IRS notices, taxpayer compliance data

Meet the new IRS. It’s the kinder, gentler IRS. It’s an agency with processes that are fast becoming structured, streamlined, and strangely quiet.

Quiet, that is, except on paper.

More Internal Revenue Service notices are going out to taxpayers than ever before. In fact, since 2001, notice volume has increased 670 percent, to 201 million sent in 2009. This is the IRS being smarter about tackling what it considers to be a big problem.

In 2001, the IRS conducted a study to identify the amount of taxes that goes unpaid each year. The result: a $345 billion tax gap – stemming mainly from a complicated and changing Tax Code, often vulnerable to fraud. The IRS quickly made plans to close this gap while maintaining itself as a customer service organization. The result: improved technology and information systems that isolate compliance areas – and a dramatic increase in IRS notices.

For accounting firms, this means more work and more contact with the IRS, because two thirds of taxpayers rely on their accountant each year for compliance. While this sounds like a potential problem, it can represent a tremendous opportunity to enhance client service and further strengthen the client-accountant relationship.

While the IRS still conducts audits and face-to-face meetings, its compliance strategy for the 21st century is shifting. The agency has realized that it must leverage its channels, such as tax preparers and IRS information systems, to close the tax gap.

This year, the IRS started regulating tax preparers by requiring registration and competency standards, a strategy that may have also reduced the number of preparers. There were more than 1.2 million registered preparers before IRS regulation; now there are less than 700,000. The IRS will continue to work with tax professionals so that preparers will assist with compliance.

In the 1990s, the IRS approached compliance through traditional methods such as audits and in-person tax collection. During the past 10 years, however, the IRS has improved its ability to target potential noncompliance through technology. The rate of e-filed returns is fast approaching the IRS target of 80 percent, and improved information systems have automated matching techniques and specialized, issue-focused notices – all aimed at narrowing the tax gap. The IRS reported the following results:

For the more than 4.3 million information-matching notice discrepancy audits, the average return on investment for the IRS is $1,670 per return, with little involvement by IRS personnel.

The IRS mail audit program, responsible for 78 percent of all IRS audits in 2010, averages almost $6,600 in additional taxes owed per audit.

With enhancements in notice and information systems, the IRS also improved its compliance practices and reduced personnel by 6 percent during the past 10 years.

© 2011, Accounting Today.

Tags: audits, IRS notices

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

The increase reflects an apparent reversal of thinking at IRS. As late as last month, during a conference call to the payroll industry, an IRS spokesperson said IRS had no current plans to boost the mileage rate.

Tags: business mileage, mileage allowance increase

The Small Business Jobs Act doubled the amount that could be written off for 2010 to $10,000 and increased the phaseout threshold from $50,000 to $60,000. It is important to note that this increased deduction is temporary, and only applies to tax years beginning in 2010.

Start-up expenses include, with a few exceptions, all expenses incurred to investigate the creation or acquisition of a business, to actually create the business, or to engage in a for-profit activity in anticipation of that activity becoming an active business. To be eligible for the election, an expense also must be one that would be deductible if it were incurred after the business actually began. An example of a start-up expense is the cost of analyzing the potential market for a new product.

As you can see, it’s important to keep a record of these start-up expenses, and to make the appropriate decision regarding the write-off election. As mentioned above, if you opt out of the election, there is no current tax benefit derived for the eligible expenses covered by the election. Also, you should be aware that an election either to deduct or to amortize start-up expenditures, once made, is irrevocable.

© 2011 Thomson Reuters/RIA. All rights reserved.

Tags: 2010 Small Business Jobs Act, small business deductions

If you’ve recently started a business, or if you’re in the process of starting one, you should be aware of a tax law change that could make a big difference in your tax bill. The 2010 Small Business Jobs Act doubled the amount of start-up expenses that someone starting a business in 2010 could write off in that year. Here are the details.

Generally, expenses incurred before a business begins don’t generate any deductions or other current tax benefits. However, under pre-2010 Small Business Jobs Act law, taxpayers, whether they were individuals, corporations or partnerships, were permitted to elect to write off up to $5,000 of “start-up expenses” in the year business began, and the rest could be deducted over a period of 180 months. The $5,000 figure was reduced by the excess of total start-up costs over $50,000. You were deemed to have made this election unless you opted out.

© 2011 Thomson Reuters/RIA. All rights reserved.

Tags: busness deductions, Small Business Jobs Act