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Monday, February 27, 2012

8th Circuit affirms S corporation shareholder’s compensation was not reasonable

FEBRUARY 24, 2012
The Eighth Circuit affirmed the District Court for the Southern District of Iowa’s decision that an S corporation shareholder’s $24,000 salary was not reasonable compensation and that the $91,044 salary determined by the government’s expert witness was (David E. Watson, P.C., No. 11-1589 (8th Cir. 2/21/12)).

Friday, February 24, 2012

$1 Billion Awaits People Who Haven’t Filed 2008 Taxes


Tax refunds amounting to over $1 billion are awaiting an estimated 1 million people who still have not filed a federal income tax return for 2008.

Tuesday, February 21, 2012

IRS Experiences Further Tax Refund Delay Problems


The Internal Revenue Service has been having more problems with delayed tax refunds.

Saturday, February 18, 2012

Congress Passes 2012 Payroll Tax Holiday Extension

CCH Tax Briefings,

Printable Version

Special Report

Congress Passes 2012 Payroll Tax Holiday Extension
Congress has extended the employee-side payroll tax cut through the end of 2012. After weeks of uncertainty over whether an agreement could be reached, the House passed the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) by a vote of 293 to 132 on February 17, 2012. Senate approval quickly followed, also on February 17, by a vote of 60 to 36. Lawmakers agreed not to require the $93.2 billion estimated cost for the payroll tax cut extension to be offset by revenue-raising provisions. A potential impasse over revenue increases was avoided entirely when both parties agreed to offset costs of the full-year, two percentage point payroll tax cut through transfers from the general fund of the Treasury to the OASDI trust fund. In a revenue neutral provision, however, the new law eliminates a timing-shift in the estimated tax payments that had been required of certain large corporations under previous laws. Non-tax provisions within the new law extend unemployment benefits and implement a"doc fix" for Medicare. President Obama is expected to sign the bill as soon as it reaches the White House.


The Joint Committee on Taxation (JCT) has estimated that approximately 170 million wage earners and self-employed individuals will benefit from the payroll tax reduction in 2012. The White House figures that taxpayers on average will see a $1,000 increase in take-home pay in 2012. The extension benefits both employees and those self-employed. The IRS has indicated it would be ready to quickly implement a full-year extension of the payroll tax cut.


To offset the payroll tax extension, Democrats had proposed a surtax on millionaires, which met with strong Republican resistance. Failure to include that provision in the new law—possibly the last tax-related bill to be passed by Congress in the near future—significantly lowers the likelihood of any new tax on higher income individuals being approved by Congress before the November elections.


The Temporary Payroll Tax Cut Continuation Act of 2011 (2011 Payroll Continuation Act) had extended the employee-side payroll tax rate reduction of two percentage points through the end of February 2012. The new law extends the employee-side payroll tax holiday through the end of 2012.
Under the new law, individuals who receive wages and salaries will pay Old-Age, Survivors, and Disability Insurance (OASDI) taxes at a rate of 4.2 percent for calendar year 2012. The OASDI tax rate for selfemployed individuals for 2012 similarly has been extended at a reduced 10.4 percent level through the end of 2012.


All wage earners and individuals who are self-employed share in the two percentage point payroll tax cut extension, up to the Social Security earnings cap of $110,100 for 2012. Taxpayers earning more than $110,100, benefit from the two percentage point reduction up to the $110,100 wage base. Workers under the Railroad Retirement System also benefit from a similar reduction in 2012 (as they did for 2011) with respect to the rate of withholding, from 6.2 percent down to 4.2 percent.


Reduced OASDI withholding has no effect on an individual's future Social Security benefits.
OASDI. Individuals contribute to Social Security through payroll taxes (the Federal Insurance Contributions Act (FICA)) or self-employment taxes (Self-Employment Contributions Act (SECA)). Both FICA and SECA are composed of two parts: (1) the Old-Age, Survivors, and Disability Insurance (OASDI) tax and (2) the Medicare Hospital Insurance (HI) tax. The OASDI tax normally requires employers and employees each to pay 6.2 percent of wages up to the maximum taxable wage base ($110,100 for 2012). Self-employed individuals pay both portions (normally equal to 12.4 percent). The new law reduces those rates to 4.2 percent and 10.4 percent, respectively, for 2012.
Starting in 2013, the Patient Protection and Affordable Care Act (PPACA) is set to impose an additional 0.9 percent Medicare tax on wages in excess of $200,000 ($250,000 in the case of a joint return, $125,000 in the case of a married taxpayer filing separately).


When Congress passed the two-month extension of the payroll tax cut, the extension included a recapture provision, which was intended to apply to individuals who receive more than $18,350 in remuneration in January and February 2012. The recapture tax would have been payable in 2013 when the individual filed his or her income tax return for the 2012 tax year. The House Ways and Means Committee explained that the recapture provision would not apply when Congress approved a full-year extension of the payroll tax cut for 2012. The new law holds true to that promise by amending the definition of "Payroll Tax Holiday Period" in the 2010 Tax Relief Act to mean calendar years 2011 and 2012, and by repealing the January-February recapture provisions.
On February 16, Treasury Secretary Timothy Geithner told the Senate Budget Committee that he does not anticipate the payroll tax cut would be extended for a third year (into 2013). "This has to be a temporary tax cut. I don't see any reason to consider supporting its extension."


In a February 15, 2012 letter to the Joint Committee on Taxation, IRS Commissioner Douglas Shulman reported that the IRS had taken measure to prepare for the expiration of the two-month extension, including revising forms and instructions and programming systems. He further wrote that the IRS will be making "small modifications to certain notices to, and publications for, employers"but that no new guidance would be required and only minimal impact on IRS training and the Internal Revenue Manual would take place because of the full-year extension.


Shulman concluded that, as an extension of current law (except for the recapture repeal), the full-year extension of the payroll tax holiday "should not add significant burden to taxpayers and the public in general." Shulman added,"computer software providers and large employers may have programmed their systems for current law and would need to make … adjustments."


The employer's share of OASDI taxes is not reduced to 4.2 percent but remains at 6.2 percent for all of 2012. That 6.2 percent"half" of OASDI taxes on self-employment income is effectively built into the 10.4 percent rate for 2012.
For tax years beginning in 2009 and 2010, a less generous Making Work Pay credit was available for workers, capped at $400 ($800 for a joint return) and a phase out for modified adjusted gross income above $75,000 ($150,000 for joint returns). An employer-side payroll tax holiday was also available for wages paid from March 19, 2010 through December 31, 2010, to qualified workers hired after February 3, 2010, and subject to certain limitations.


House Republicans introduced the Payroll Tax Cut Continuation Act of 2012 as a stand-alone payroll tax cut bill without an extension of unemployment benefits and a Medicare "doc fix." Last-minute negotiations added an extension of unemployment benefits and the Medicare "doc fix" (as well as a name-change for the bill to the Middle Class Tax Relief and Job Creation Act of 2012).
The GOP dropped a proposal to require claimants for the earned income credit to have a Social Security number. Also dropped was a proposal to extend 100 percent bonus depreciation one more year, through 2012. The so-called "tax extenders" provisions were tabled. These include the research tax credit, the state and local sales tax deduction, the higher education tuition deduction, and many others.


Generally, a corporation is required to make quarterly estimated tax payments during its tax year based on its income tax liability. For a corporation whose tax year is a calendar year, these estimated tax payments must be made by April 15, June 15, September 15, and December 15. A fiscal year corporation pays estimated tax installments for a tax year on the 15th day of the fourth, sixth, ninth, and twelfth months of the year.
A number of recent laws have accelerated the estimated tax payment required to be made by certain large corporations (those with assets of at least $1 billion) from one quarter into the previous quarter. Congress had enacted these changes solely as accounting maneuvers designed to make certain budgetary requirements over shifting budget windows from one fiscal year to another. For example, such shifts were required under the trade agreements with Colombia, Korea and Panama enacted in 2011; the Hiring Incentives to Restore Employment Act of 2010; and the Corporate Estimated Tax Shift Act of 2009. Under this regime, the next required installment of estimated tax would be reduced accordingly to reflect the increase. None of these shifts has yet to take place.
The new law provides that these recently enacted timing shifts are repealed. The regular payment schedule that applied prior to the enactment of the timing shifts is restored.


According to the Joint Committee on Taxation, repeal has no revenue effect over 2012-2021.
President Obama called for repeal of these timing shifts in his fiscal year (FY) 2013 budget proposals.


AMT Patch. President Obama has proposed abolishing the AMT and recouping at least some of the lost revenue with the so-called Buffett Rule. Until (and if) Congress should enact the Buffett Rule, President Obama has proposed to provide for AMT patch for 2012 and subsequent years. The AMT patch provides taxpayers with increased exemption amounts.
Corporate Tax Reform. There is a growing groundswell among tax professionals that tax reform is necessary both to reduce complexity and streamline economic competitiveness. The administration is expected to unveil a "framework" for corporate tax reform later in February. Administration officials have said that the corporate tax rate could be reduced in exchange for the closing of unspecified tax loopholes. The framework could also include the President's proposed minimum tax on overseas profits, which like the Buffett Rule has not yet been described in detail by the administration.
Carried Interest. As part of his FY 2013 budget, President Obama proposed to designate a carried interest in an investment partnership as a services partnership interest (SPI). A partner's share of income from an SPI that is not attributable to invested capital would be taxed as ordinary income. Self-employment tax would attach to that income. The President's proposal has been described as a non-starter by the GOP.
Bonus Depreciation. One hundred percent bonus depreciation generally expired at the end of 2011. President Obama and many lawmakers support extending 100 percent bonus depreciation through the end of 2012.
Extenders. A host of temporary individual, business and energy tax incentives expired at the end of 2011. President Obama has indicated his support for extending the extenders as have many lawmakers. However, the cost of extending the expired provisions could be an obstacle to their passage.
While the tax extenders could be retroactively reinstated by Congress to January 1, 2012, if passed even late in 2012, proponents argue that their effectiveness is significantly diminished the later they are taken up by Congress.
Sunsetting of the Bush-Era Tax Cuts. President Obama and the GOP remain far apart over the fate of the Bush-era tax cuts. The President has frequently reiterated his proposal to allow the Bush-era tax cuts to expire for higher income taxpayers after 2012, most recently in his State of the Union address and FY 2013 budget proposals. Both sides expect little progress over the fate of the Bush-era tax cuts until after the November elections.

Friday, February 17, 2012

IRS Help Tools

Buchanan concluded by reminding taxpayers of the tax tools available on the IRS website. Apart from the product pages detailing the more than 500 tax forms and schedules, he noted that there are several toll-free numbers for both individuals and businesses. Taxpayers who have completed the filing process and want to check on their refunds can visit the IRS website and use the Where Is My Refund? tool or download and use the IRS2Go smartphone app.
Langley reminded taxpayers about the identity theft PIN numbers issued to taxpayers whose information was stolen and used to file fraudulent tax returns. He cautioned that if taxpayers received a PIN and fail to enter it, the processing of their return will be significantly delayed. If they do not know the number, the IRS would not be able to reissue or replace it. “If they don’t have the PIN, then they just have to go without it,” said Langley.

Thursday, February 16, 2012

IRS Gives Advice on Reporting Unemployment Benefits


The Internal Revenue Service offered advice Wednesday to unemployed taxpayers on how they and their tax preparers should report unemployment benefits on their tax returns.

Wednesday, February 15, 2012

Individual Credits Very Limited Now

Individual Credits

First-time homebuyer credit. “The first-time homebuyer credit is much more limited this year,” said Langley, who stated that the $7,500 credit has expired in 2012 for most taxpayers. Some members of the foreign service or military who were not living within the United States and were able to take advantage of the credit still qualify. The few who do qualify cannot electronically file their returns. They must file on paper.

Additionally, those who claimed the credit in 2009 and 2010 and have since sold their homes must repay the credit. “But if there was no gain from the sale, no tax is really due. They just have to do some paperwork,” said Langley. Taxpayers repaying the credit from 2008 can now repay the credit directly on Form 1040, U.S. Individual Income Tax Return , or 1040NR, U.S. Nonresident Alien Income Tax Return, rather than by filing Form 5405, First-Time Homebuyer Credit and Repayment of the Credit.

Energy credit. The energy credit meant to help taxpayers offset the costs for installation of qualified energy efficiency improvements is more limited. “Not many taxpayers will be eligible for it,” Langley noted. A taxpayer may claim credits of up to $500 in his or her lifetime, including a maximum of $200 for replacement windows.

Earned income credit. A refundable earned income credit (EIC) is available to certain low-income individuals whose adjusted gross income (AGI) is below a certain level and who have a valid Social Security number, use a filing status other than married filing separately, are U.S. citizens or resident aliens, have no foreign income, and do not have investment income above a certain amount. Many taxpayers have incorrectly claimed the credit in the past.

Tuesday, February 14, 2012

Individual Income/Deductions

Individual Income/Deductions

The additional tax on distributions from a Health Savings Account for non-qualified medical expenses has increased from 10 percent to 20 percent. The definition of qualified medical expenses has also narrowed and no longer includes non-prescription drugs (except for insulin). For example, Tylenol and Advil only qualify for tax-free status if prescribed.

Medical/moving expenses. The IRS updated the mileage rate for calculating the deduction of expenses incurred for operating an automobile for qualifying medical or moving purposes for 2012. For the first half of 2011, the rate was 19 cents per mile; then, to reflect increasing transportation costs, the IRS increased the rate to 23.5 cents for the second half of the year.

Roth IRA conversions. Congress enacted a special provision allowing taxpayers converting their traditional IRAs to Roth IRAs in 2010 to defer the income until 2011 and 2012. Taxpayers who rolled over this income in 2010 must report the first half of the income in 2011 and the second half in 2012.

Expired provisions. Tax provisions that have now expired include deductions for teacher/educator expenses and the tuition deduction (once reported on Form 8917, Tuition and Fees Deduction ). The state and local sales tax deduction, an itemized deduction that taxpayers can take in lieu of their state and local income taxes, expired at the end of 2011. Although taxpayers may claim it on their 2011 returns, they cannot count on it for 2012. Congress, however, may retroactively extend the deduction, as it has in the past.

The Cloud(s) Are Forming

Infinite storage in the cloud

February 14, 2012

Bitcasa has created a new cloud service that promises “infinite storage” in the cloud for Windows and Mac.

Explosion of Mobile Video

 | February 14, 2012, 5:00 AM
Mobile video is coming on stronger.
Cisco just released its annual five-year forecast for mobile data traffic, which projects that by 2016 mobile data will amount to 130 exabytes annually, 18 times current levels. That data figure is roughly the amount of data on 33 billion DVDs, or 813 quadrillion text messages.

IRS Form Changes For Individuals

Individual Form Changes

New Form 8949, Sales and Other Dispositions of Capital Assets, supplements Schedule D as the means of reporting capital gains and losses for many situations. Schedule D has not disappeared, however, and must be filed along with Form 8949 in many cases (for example, to report a gain or loss from a partnership, S corporation, estate or trust). But much of what had been reported on the old Schedule D now goes on Form 8949.

“The IRS recognizes that the changes to Schedule D and Form 8949 are causing a lot of anxiety,” Langley responded. He assured taxpayers that the forms had been tested, however.

Foreign financial assets. Certain filers must now report their foreign financial assets on Form 8938, Statement of Foreign Financial Assets. This development is in addition to the requirement that certain taxpayers file the FBAR form, Report of Foreign Bank and Financial Accounts, which has been in place for several years.

Schedules L and M. In 2012, individuals will not need to file Schedule L, Standard Deduction for Certain Filers, the form on which the standard deduction was formerly calculated. For 2011, the amount of the deduction ($5,800 for single filers, $11,600 for married joint filers) is now located on the left margin of Form 1040, near the line where the deduction is entered. For those who still need to calculate their deduction, the amount can be found in the Form 1040 instructions.

Schedule M, Making Work Pay Credit, is also gone. The 2-percentage-point decrease in employee-side payroll taxes was designed to replace this credit.

Friday, February 10, 2012

Predicting economic disaster by analyzing correlations of countries’ stock markets

Having attracted the interest of governmental financial ministries, the project will now be extended to include even more markets. “With such high frequency data, you can have almost real-time or short-time predictions on how economic information flows throughout the world,” Kenett notes.

U.S. median household income up 4% at end of 2011

After falling steadily since the recession began four years ago, household income appeared to turn the corner by rising sharply the last four months of 2011.

Tuesday, February 07, 2012

Taxpayers Concerned about Security of Tax Filing



The last paragraph sort of contradicts the headline:

“When our survey was first conducted in 1997, a whopping 83 percent of Americans had worries about Internet-based tax filing,” said spokesperson Mickey Macedo. “The lesson here is that, over time, tens of millions of people have grown comfortable filing their taxes online. Whether this year’s spike in concerns is a blip or a trend, only time will tell.”

Friday, February 03, 2012

Job growth surges, jobless rate drops to 8.3 percent

WASHINGTON | Fri Feb 3, 2012 9:25am EST
(Reuters) - The economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to a near three-year low of 8.3 percent, providing some measure of comfort for President Barack Obama who faces re-election in November.
Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The gain in overall employment was the largest since April and outpaced economists' expectations for a rise of only 150,000.

Thursday, February 02, 2012

From Facebook IPO Documents

At the end of 2011 Facebook had 845 million users, up from 608 million users at end of 2010.  Of the 845M, over half (483 million users) log in every day.  $4.39 in revenue per user per year is generated.  This compares to over $30 per user per year by Google.  Over 44% of its revenue is generated outside of the US.  Facebook thinks is growth opportunities are Brazil, Germany, India, Japan, Russia, and South Korea.

Facebook 'worries' about Google Plus and regulators in Europe and the US.

Car sales remain strong

Retired economist Scott Grannis' blog:

Wednesday, February 01, 2012

Innovation without age limits

February 1, 2012
A survey of entrepreneurs found that most started their first company at age 39. People with degrees in computer science started companies much sooner than those with advanced training in other sciences or engineering. (Credit: Kauffman Foundation)
Research by Vivek Wadhwa, VP of academics and innovation at Singularity University, and his team found in a survey that the average and median age of the founders of successful U.S. technology businesses (with real revenues) is 39.

IRS and DOJ Bust Identity Thieves Across U.S.


The Internal Revenue Service and the Justice Department said Tuesday they have conducted a massive nationwide sweep to nab identity theft fraudsters as part of a stepped-up effort against tax refund fraud.