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Sponsored by Taxsoftware.com   http://www.taxsoftware.com             August 15, 2006          Volume 1, Issue 4

Special Interest Articles

Late E-file

Online Tax Payment

End of Long Distance Tax

Reporting Your Tips

Tax Scheme on Canada Border

             

E-file Available Through October 16

Taxpayers who previously filed an extension of time to file tax returns can still file their returns electronically until Oct. 16, 2006.

Last year, nearly 1.8 million taxpayers e-filed after the April deadline. This year, through April 21 alone, 70 million tax returns were e-filed—with 20 million coming from home computers.

E-filing is convenient, safe, and secure, and taxpayers receive confirmations for their records. Taxpayers can e-file through:

bullet Tax professionals — Use the Authorized IRS e-file Provider Locator Service or check the Individual e-file Providers page on the IRS Web site to find tax professionals who offer e-file.
bullet Home computers — A computer with a modem or Internet access and tax preparation software are all that is necessary. E-filing via home computer can be done 24 hours a day, 7 days a week.
bullet The Free File Alliance —Taxpayers with an adjusted gross income (AGI) of $50,000 or less may be eligible to receive free tax return preparation and electronic filing through a partnership agreement between the IRS and the Free File Alliance, LLC.

Extensions grant extra time for filing only, not for paying any taxes due. Taxpayers owe interest on past due taxes, and may incur late payment penalties for late payments. The original due date for most taxpayers was April 17.

IRS Launching Online Payment

The IRS is working with tax professionals to launch a new system that will allow many individuals who owe delinquent federal taxes to pay online.

The IRS is implementing the new Online Payment Agreement (OPA) application through national partnerships with the tax professional community. Tax professionals use OPA to apply for payment agreements for clients who owe taxes, eliminating the need to write or call the IRS toll-free number for assistance. When fully implemented, OPA will give taxpayers—and the professionals who help them—an easier way to pay.

“This new system reduces taxpayer burden by providing the convenience of online service during extended hours and on weekends,” said IRS Commissioner Mark W. Everson. “Taxpayers can set up an agreement and arrange for payment options including automatic payments through direct debit or payroll deduction.”

The IRS estimates that 90 percent of taxpayers who qualify for a payment agreement will be able to obtain one through OPA once the application is available to the general public later this year. 

Special Offer for Professional Tax Preparers

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Business Returns Have Never Cost So Little

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Long-Distance Telephone Tax Ends

The IRS will stop collecting the federal excise tax on long-distance telephone service.

The tax on telephone services was first imposed in 1898. The current rate is 3% of the charges billed for these services. The IRS decided to stop collecting this tax following decisions in five federal appeals courts holding that the tax does not apply to long-distance service as it is billed today.

Taxpayers will be eligible to file for refunds of all excise tax paid on long-distance service billed to them after Feb. 28, 2003. Interest will be paid on these refunds.

Taxpayers will claim this refund on their 2006 tax returns. In order to minimize burden, the IRS expects to provide a simplified method that individuals may use.

“So taxpayers won’t have to spend time digging through old telephone bills, we’re designing a straightforward process that taxpayers may use when they file their tax returns next year,” said IRS Commissioner Mark W. Everson. “Claiming a refund will be simple and fair.”   

The federal excise tax on local telephone service remains in effect. Likewise, various state and local taxes and fees paid by telephone customers are also unaffected.

Tip Reporting Made Easy

The IRS released formal guidance on its new tip reporting procedure, the Attributed Tip Income Program (ATIP). ATIP reduces industry recordkeeping burdens, has simple enrollment requirements, and promotes reporting tips on federal income tax returns.

ATIP provides benefits similar to those of previous tip reporting agreements, but does not require employers to meet with the IRS to determine tip rates or eligibility. Employers are not required to sign agreements with the IRS to participate, and participation by employers and their employees is voluntary.

Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally attributed among employees based on the practices of the restaurant. 

Employers participating in ATIP enjoy several benefits:

bullet The IRS will not initiate an “employer-only” 3121(q) examination during the period the employer participates in ATIP.
bullet Tip reporting is simplified, and in many cases employers will not have to receive and process tip records from participating employees. 
bullet Enrollment is simple.  There are no one-on-one meetings with the IRS and no agreements to sign.  Employers elect participation in ATIP by checking the designated box on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. 

Employees also benefit from ATIP:

bullet The IRS will not initiate a tip examination during the period the employer and employee participate in ATIP.
bullet Improved income-reporting procedures could help employees qualify for loans or other financing.
bullet Employees who work for a participating employer can easily elect to participate in ATIP by signing an agreement with their employer to have their tip income computed under the program and reported as wages.
bullet Participating employees do not have to keep a daily tip log or other tip records.


Some general requirements for participating restaurants:

bullet The employer annually elects to participate in ATIP and uses the prescribed methodology for reporting tips by filing Form 8027 and checking the ATIP participation box.  Simplified filing is provided for small establishments not required to file Form 8027.
bullet Employer’s establishment must have at least 20% of gross receipts as charged receipts that reflect a charged tip.
bullet At least 75% of tipped employees must agree to participate in the program.
bullet Employer reports attributed tips on Employees’ Forms W-2 and pays taxes using the formula tip rate
bullet The formula tip rate is the charged tip rate minus two percent – the two percent takes into account a lower cash tip rate.
bullet The charged tip rate is based on information from the establishment’s Form 8027.

ATIP is a three-year pilot program for food and beverage employers.  Employers will participate on an annual basis. The first annual basis begins January 1, 2007.

IRS & Canada Revenue Agency Unravel Cross-Border Tax Scheme

Officials of the Canada Revenue Agency (CRA) and the IRS have worked together to unravel an abusive, cross-border tax scheme. This effort stems from leads and information first developed by the Joint International Tax Shelter Information Centre (JITSIC).

The scheme involves hundreds of taxpayers and tens of millions of dollars in improper deductions and unreported income from retirement account withdrawals. U.S. and Canadian promoters have been marketing the scheme on both sides of the border to individual investors, ranging from middle to high-income individuals.

CRA Commissioner Michel Dorais said, “Tax administrations in many parts of the world are working together to detect and shut down abusive tax schemes. Promoters who believe they can play one country against another in developing tax schemes should beware.”

“The real time exchange of information, including the identities of promoters and hundreds of investors has been critical to this investigation,” said IRS Commissioner Mark W. Everson. “JITSIC is emerging as an important part of efforts to combat abusive schemes.”

Under the scheme, investors purchased what appear to be high-yield offshore investments through offshore corporations and foreign bank accounts. Typically, investors make these purchases using cash or proceeds from withdrawals, allegedly tax free, of retirement funds (RRSPs in Canada, IRAs in the U.S.). Investors also make purchases using tax refunds improperly generated by alleged losses claimed for natural resource industry investments.

CRA and IRS agents continue to identify promoters, participants, and entities involved in the scheme. Promoters and participants engaged in abusive schemes routinely have been subjected to strict enforcement action by both tax administrations.

JITSIC was established in 2004 by the tax administrations of four countries: Australia, Canada, the United Kingdom, and the United States. Delegates from each of the four countries work together in Washington, D.C., to identify and curb abusive tax schemes.