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Federal and Louisiana Taxes

Category Archives: Federal Tax

IRS SCAM ALERT

The latest trend in scams involves IRS collections at Newswire 2013-84

WASHINGTON — The Internal Revenue Service today warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can help protect themselves. Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail

Other characteristics of this scam include:
•Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
•Scammers may be able to recite the last four digits of a victim’s Social Security Number.
•Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
•Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
•Victims hear background noise of other calls being conducted to mimic a call site.
•After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:
•If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
•If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
•If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

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Home Energy -Efficient Credit

IRS 2013-48

If you made your home more energy efficient last year, you may qualify for a tax credit on your 2012 federal income tax return. Here is some basic information about home energy credits that you should know.

Non-Business Energy Property Credit
•You may claim a credit of 10 percent of the cost of certain energy saving property that you added to your main home. This includes the cost of qualified insulation, windows, doors and roofs.

•In some cases, you may be able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems.

•This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.

•Your main home must be located in the U.S. to qualify for the credit.

•Not all energy-efficient improvements qualify, so be sure you have the manufacturer’s credit certification statement. It is usually available on the manufacturer’s website or with the product’s packaging.

•The credit was to expire at the end of 2011. A recent law extended it for two years through the end of 2013.energy-efficient-house-medium

Residential Energy Efficient Property Credit
•This tax credit is 30 percent of the cost of alternative energy equipment that you installed on or in your home.

•Qualified equipment includes solar hot water heaters, solar electric equipment and wind turbines.

•There is no limit on the amount of credit available for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.

•You must install qualifying equipment in connection with your home located in the United States. It does not have to be your main home.

•The credit is available through 2016.

Use Form 5695, Residential Energy Credits, to claim these credits. You can get Form 5695 at IRS.gov or order it by calling 1-800-TAX-FORM (800-829-3676).

Kids’ Investment Income Is Taxable, But Where?

Tax Rules for Children Who Have Investment Income

IRS Tax Tip 2013-38, March 21, 2013

Some children receive investment income and are required to file a federal tax return. If a child cannot file his or her own tax return for any reason, such as age, the child’s parent or guardian is responsible for filing a return on the child’s behalf.

There are special tax rules that affect how parents report a child’s investment income. Some parents can include their child’s investment income on their tax return. Other children may have to file their own tax return.

Here are four facts from the IRS about the taxability of your child’s investment income.
1.Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.

2.Special rules apply if your child’s total investment income is more than $1,900. The parent’s tax rate may apply to part of that income instead of the child’s tax rate.

3.If your child’s total interest and dividend income is less than $9,500, you may be able to include the income on your tax return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends. If you make this choice, the child does not file a return.

4.Your child must file their own tax return if they received investment income of $9,500 or more. File Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, with the child’s federal tax return.

For more information on this topic, see Publication 929, Tax Rules for Children and Dependents. This booklet and Forms 8615 and 8814 are available at IRS.gov. You may also have them mailed to you by calling 800-TAX-FORM (800-829-3676).

IRS Makes A Quaint Review: Taxable and Nontaxable Income

Taxable and Nontaxable Income.

IRS Tax Tip 2013-12, February 12, 2013

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

  • Child support payments;
  • Gifts, bequests and inheritances;
  • Welfare benefits;
  • Damage awards for physical injury or sickness;
  • Cash rebates from a dealer or manufacturer for an item you buy; and
  • Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

  • Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering – the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

If you received a refund, credit or offset of state or local income taxes in 2012, you may be required to report this amount. If you did not receive a 2012 Form 1099-G, check with the government agency that made the payments to you. That agency may have made the form available only in an electronic format. You will need to get instructions from the agency to retrieve this document. Report any taxable refund you received even if you did not receive Form 1099-G.

For more information and examples, see Publication 525, Taxable and Nontaxable Income. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year.

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

Home OfficeThe new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after Jan. 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

Employee or Independent Contractor? Why Does It Matter?

Jerry L. Stovall, Jr.
jls@bswllp.com

Outline of Presentation Made to Lake Charles CPA Society In October 2012

PURPOSE     To provide an overview of the criteria for determining whether an individual should be classified and treated as an employee or independent contractor and to review the risks that may arise from improper classification.

●          ENFORCEMENT      Department of Labor and Internal Revenue Service have recently announced that they plan to step up enforcement of correct categorization of employee v. independent contractor.

●          WHY SHOULD YOU CARE?         Costs, including taxes; Legal implications, Liability

●          EMPLOYEE OR INDEPENDENT CONTRACTOR?

1)      Behavioral – Right to Control – Manner in which the job is done
2)      Financial Economic Realities – Does employer control business aspects of worker’s job (expense reimbursement, provide tools/supplies/insurance…)?
3)      Type of Relationship – Are there written contracts or employee type benefits (pension, insurance vacation)?  Will relationship continue?  Is the work performed integral to employer’s business?  Worker opportunity for profit/loss and ability to take other jobs.
4)      “Right to Control” – Typically used by IRS for purposes of wage withholdings.
5)      “Economic Realities” – Usually used for FLSA, Title VII, Age Discrimination in Employment Act, ADA and FMLA.

●          IRS 20 FACTOR TEST         This test helps analyze the degree of control over manner and method of work

1)      Instructions
2)      Training
3)      Integration
4)      Services rendered personally
5)      Hiring, supervising and paying assistants
6)      Continuing relationship
7)      Set hours of work
8)      Full-time required
9)      Working on employer premises
10)  Order or sequence set
11)  Oral or written reports
12)  Payment by hour, week, month
13)  Payment of business and/or traveling expenses
14)  Furnishing tools and materials
15)  Significant investment by the worker
16)  Opportunity to realize profit or loss
17)  Opportunity to work for more than one business at a time
18)  Making services available to the general public
19)  The business’ right to discharge
20)  Workers’ right to terminate

●          THESE WILL NOT PROTECT YOU IF YOU MISCLASSIFY:

1)      Employee wanted to be treated as an independent contractor
2)      Employee signed a written contract
3)      Paid only in commission
4)      Has little supervision

●          SECTION 530 SAFE HARBOR

1)      Relief from retroactive assessment of federal tax liabilities
2)      Elements:  a)      Taxpayer did not treat individual as an employee for any period, and  b)      Taxpayer is consistent with treatment of individual as not being an employee, then  c)      Individual will not be an employee unless taxpayer did not have a reasonable basis for not treating individual as an employee.
3)      Reliance upon the following is a “reasonable basis”:  a)      Judicial precedent, published rulings, technical advice to taxpayer or a letter ruling to taxpayer;  b)      Past IRS audit of taxpayer and no assessment attributable to treatment of individuals holding substantially similar positions; or  c)      Long-standing recognized practice of a significant segment of the industry.

●          VOLUNTARY CLASSIFICATION SETTLEMENT PROGRAM

1)      September 2011
2)      Provides partial relief from retroactive federal employment tax assessments for eligible employers.
3)      Eligible = taxpayer consistently treated workers as non employees and filed 1099 forms for previous three (3) years.
4)      Tax payer must apply for program.
5)      Tax payer cannot be under audit regarding worker classification at time of audit.
6)      If accepted, tax payer must pay 10% of employment tax liability on compensation paid during most recent tax year.

●          COMMON WAYS EMPLOYERS ARE CAUGHT

1)      Unemployment benefit claim
2)      Unpaid wage claim
3)      LA “Payday” Statute (La. R.S. 23:631)
4)      State/Federal Charge of Discrimination/Harassment
5)      State/Federal wage audit
6)      Workers’ compensation claim
7)      Retirement
8)      DOL Audit
9)      Employee complaint/suit
10)  Union “drops a dime”

●          CONSEQUENCES OF IMPROPER CLASSIFICATION

1)      Unpaid wages (including overtime) and benefits
2)      Attorney’s fees
3)      Back taxes, plus interest and penalties
4)      Civil fines/criminal penalties
5)      Provide employee benefits, including health insurance and retirement
6)      Pay any misclassified injured employees workers’ compensation benefits
7)      Notice to workers (in some states)
8)      Employee claims:   a)        Overtime   b)       Pay Day Statute   c)       Employee benefit plans   d)      Retirement plans   e)       Unemployment   f)        Workers’ compensation

●          CASES

i)         Talbert v. American Risk Inc. Co., Inc. (C.A. 5 Tex. 2010)
ii)       Lindsley v. BellSouth Telecommunications, Inc. (C.A. 5 La. 2010)
iii)     Hopkins v. Cornerstone America (C.A. 5 Tex. 2008)
iv)     Lorentz v. Coblentz, (La. App. 1 Cir. 1992)
v)       Agencies that will come knocking:   (a)     IRS (withholding)   (b)    US D.O.L. (minimum wage and overtime)   (c)     NLRB (employee’s right to organize)  (d)    EEOC (anti-discrimination laws)  (e)     OSHA (workplace safety)  (f)     State agencies

●          BEST PRACTICES

1)       Enter into a written agreement with independent contractor before work begins:   i)         Identify individual as an independent contractor   ii)       Set complete list of tasks to be performed  iii)     Specify results to be obtained   iv)     Do NOT require daily or weekly reports  v)       Do NOT specify work hours or work schedule
2)       Ensure that there are differences between the way you handle employees vs. the way you handle independent contractors
3)       Ensure that there is consistency between similarly-situated employees
4)       Compliance check =         review contracts:   i)         review policies   ii)       review jobs
5)       Document agreements and duties
6)       Collect documents:  employer identification number, business licenses, professional licenses, insurance certificates, business cards, advertisements by contractor (yellow pages, news paper) and invoices.

●          IMPORTANT LESSONS

1)       “Independent Contractor” agreements do not save the day.
2)       Issuance of a Form 1099 rather than a W-2 is not dispositive.
3)       Don’t assume your classification is proper.  Carefully consider statutes, applicable jurisdiction, and all facts underlying the relationship.

The Tax Times: Tax Court upheld the denial of Installment Agreement where Taxpayer was Not Compliant

Robbing Peter to Pay Paul?

The Louisiana Department of Revenue announced today that it will enhance its Federal to State refund offset program to collect money owed other Louisiana Agencies.  The offset program will compare US government vendors to Louisiana debtors and seize any funds the US government is preparing to pay those vendors should they owe Louisiana money.  For those vendors involved with long term contracts with the US government, having its paymenst seized will likely jeopardize its payment of subcontractors’ and suppliers’ invoices.  Can the state’s economy survive the impact of cash flow arrest?

Hurricane Isaac Tax Relief

Lance J. Kinchen
lance.kinchen@bswllp.com

On September 5, 2012, following recent disaster declarations by the Federal Emergency Management Agency, the IRS announced that affected taxpayers in Louisiana and Mississippi will receive some tax relief.

Following Hurricane Isaac, the President declared the following parishes a federal disaster area:  Ascension, Assumption, East Baton Rouge, East Feliciana, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Washington and West Feliciana.

As a result, the IRS has postponed certain deadlines for taxpayers who reside or have a business in the designated disaster area.  Under §7508A, the IRS has given affected taxpayers until January 11, 2013 to file most tax returns or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after August 26, 2012 and on or before January 11, 2013.  This includes the quarterly estimated tax payment due on September 17, 2012.  Furthermore, it includes corporations and businesses that previously obtained an extension until September 17, 2012 to file their 2011 returns and individuals and businesses that received a similar extension until October 15.

The IRS will abate any interest, late payment or late filing penalties that would otherwise apply.  In addition, the IRS is waiving failure-to-deposit penalties for federal employment and excise tax deposits normally due on or after August 26 and before September 10 if the deposits are made by September 10, 2012.

The Louisiana Department of Revenue (“LDR”) is granting similar state tax relief to affected taxpayers.  In addition to the parishes listed above, LDR has also granted state tax relief to East Baton Rouge, East Feliciana, Pointe Coupee, West Baton Rouge and West Feliciana.  LDR will waive any late filing penalties, late payments penalties and interest that would otherwise apply.  Any return or amount on which penalties or interest begin accruing before August 26, 2012 will not be eligible for this relief.

As a result, affected individuals and businesses will have until February 11, 2013 to file these state returns and pay any state taxes due.  This includes individuals and corporations that previously obtained an extension until November 15, 2012, to file their 2011 income tax returns.  It also includes the state estimated tax payment for the third quarter of 2012, due September 17, 2012.

Please consult your CPA or tax advisor on whether you qualify for such tax relief.

More Flexible Offer-in-Compromise Terms Help Taxpayers Make a Fresh Start

More Flexible Offer-in-Compromise Terms Help Taxpayers Make a Fresh Start.

More Flexible Offer-in-Compromise Terms Help Taxpayers Make a Fresh Start

IRS Summertime Tax Tip 2012-02

The IRS has expanded its “Fresh Start” initiative by offering more flexible terms to its Offer-in-Compromise Program. These newest rules enable some financially distressed taxpayers to clear up their tax problems even quicker.

An offer-in-compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to determine the reasonable collection potential.

This expansion of the “Fresh Start” initiative focuses on the financial analysis used to determine which taxpayers qualify for an OIC.

Here are the OIC changes:

  • Revising the calculation for a taxpayer’s future income The IRS will now look at only one year (instead of four years) of future income for offers paid in five or fewer months; and two years (instead of five years) of future income for offers paid in six to 24 months. All OICs must be paid in full within 24 months of the date the offer is accepted.
  • Allowing taxpayers to repay their student loans Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer’s post-high school education. Proof of payment must be provided.
  • Allowing taxpayers to pay state and local delinquent taxes When a taxpayer owes delinquent federal and state or local taxes, and does not have the ability to fully pay the liabilities, monthly payments to state taxing authorities may be allowed in certain circumstances.
  • Expanding the Allowable Living Expense allowance Standard allowances incorporate average expenses for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer-in-compromise requests. The National Standard miscellaneous allowance has been expanded. Taxpayers can use the allowance to cover expenses such as credit card payments and bank fees and charges.

More information on the “Fresh Start” initiative can be found at IRS.gov.

Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, can be found at IRS.gov or ordered by calling 1-800-TAX-FORM (800-829-3676).

 

 

Links:

  • Form 656, Offer in Compromise (PDF)
  • Form 656-B, Offer in Compromise Booket (PDF)

 

 

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