from www.mercurynews.com
By Mark SchwanhausserMercury News
Article Launched: 10/27/2007 01:39:24 AM PDT
Few regions have more people who would benefit from a new Democratic proposal to eliminate the alternative minimum tax than Silicon Valley, one of the dreaded tax system's prime hunting grounds. But don't hold your breath.
The revamping of the tax code unveiled Thursday has virtually no chance of passing in its current form this year, before the 2008 elections - and may never be approved.
It's not even clear whether Congress could approve a temporary fix to save millions of Americans from getting caught by the AMT when they file their 2007 returns. There's pressure to move quickly because the Internal Revenue Service starts sending its tax forms to be printed Nov. 7.
But the proposal from Rep. Charles Rangel, the Democratic chairman of the powerful House Ways and Means Committee, does accomplish one important thing. It has framed the election year debate over tax policy:
• Should Congress eliminate the AMT, which was designed to snare 155 wealthy taxpayers in 1969 but could whack an estimated 21 million Americans in 2007?
• If so, should lawmakers raise other taxes to offset the $800 billion in revenue that would be lost by eliminating the AMT? If Congress sticks to its pay-as-you-go policy vs. adding to the budget deficit, should rich Americans, corporations like Hewlett-Packard or venture capitalists along Sand Hill Road pay more?
• And can the nation afford to eliminate the AMT and keep President
Bush's tax cuts in effect, rather than letting them phase out as originally planned?
"Rangel is making a statement," said Clint Stretch, director of tax policy for accounting powerhouse Deloitte & Touche in Washington. "Implicitly, everyone wants to talk about eliminating the AMT, and everyone is talking about extending the Bush tax cuts. And he is putting squarely on the table the question, 'How would we do that?' "
Many taxpayers don't realize they're supposed to calculate their income tax under both the regular rules and the AMT rules - and pay whichever bill is larger. The tax's reach is spreading to the middle class because every cut under the regular tax system forces more taxpayers into the AMT, which never has been indexed to inflation.
Democrats have led the push to repeal the AMT because its bite is deepest in "blue states" such as California, New Jersey, New York and Virginia. But Republicans have resisted, with House GOP leader John Boehner of Ohio calling Rangel's bill "the mother of all tax hikes."
Even if the bill goes nowhere, Democrats will paint Republicans as the bad guys, said Thomas Ochsenschlager, vice president of the American Institute of Certified Public Accountants. "Rangel and the Democrats can say, 'Hey, we were going to eliminate the AMT - the big bogyman - and the Republicans wouldn't let us do it.' "
Many residents in affluent Silicon Valley have a lot at stake in this debate. If Congress fails to pass the one-year fix, the AMT will strike 71 percent of taxpayers with incomes between $75,000 and $200,000 - and more than one-third of the taxpayers with incomes between $75,000 and $100,000, Ochsenschlager said.
Rangel, of New York, plans to break out the patch from the giant bill into a separate bill that he will announce next week. To pay part of the bill for the patch, which is estimated to cost the government $50 billion in revenue over 10 years, Rangel has targeted venture capitalists and hedge fund investors. He aims to tax them at ordinary income-tax rates rather than the sharply lower capital-gains rates they currently pay.
Monday, the National Venture Capital Association is primed to deliver letters to lawmakers from 500 entrepreneurs who oppose such a tax change.
Finding a way to kill the AMT is politically sensitive. In 2005, President Bush's tax reform panel ignited a firestorm by suggesting the lost revenue could be offset by slashing coveted deductions such as mortgage interest, state and local tax payments and health insurance premiums.
Rangel's plan would pay for the lost AMT revenue primarily by taxing the wealthiest Americans more. He proposes a 4 percent surcharge on taxpayers earning at least $200,000, and a 4.6 percent surcharge on incomes above $500,000. High-income taxpayers also would face limits on itemized deductions and personal exemptions.
Rangel's bill also would extend a raft of tax breaks that are scheduled to expire, including the research-and-development credit and deductions for private mortgage insurance and state and local sales taxes.
In addition, the bill would cut corporate tax rates, with the top rate dropping from 35 percent to 30.5 percent. To offset those cuts, though, Rangel would tighten rules that favor relatively small numbers of corporations.
For example, the plan would force U.S. companies to defer deductions from overseas divisions if they keep those profits overseas. In 2005, U.S. companies were given a one-year break that slashed taxes on so-called repatriated profits, and billions of dollars flowed back home.
Silicon Valley's 20 largest public companies brought back $28.7 billion in foreign profits, with Hewlett-Packard accounting for $14.5 billion.
Saturday, October 27, 2007
Tuesday, October 23, 2007
2008 Inflation Adjustments Widen Tax Brackets
from www.irs.gov
IR-2007-172, Oct. 18, 2007WASHINGTON — For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.
IR-2007-172, Oct. 18, 2007WASHINGTON — For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.
By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:
The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.
Monday, October 22, 2007
Poker Tournament Winnings MUST be Reported to the IRS
from www.irs.gov
Poker Tournament Winnings Must be Reported to the IRS
IR-2007-173, Oct. 19, 2007
WASHINGTON — Starting next year, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.
The new requirement, which goes into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.
For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings. But beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000, usually on an IRS Form W-2G.
Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amounts that should have been reported.
So that tournament sponsors can comply with this requirement, tournament winners must provide their taxpayer identification number, usually a social security number, to the tournament sponsor. If a winner fails to provide this identification number, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
The IRS reminds tournament winners that, by law, they must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form. This is true for 2007 and earlier years, and will continue to be the case after the new reporting requirement goes into effect.
Related Item: Revenue Procedure 2007-57 in Internal
Poker Tournament Winnings Must be Reported to the IRS
IR-2007-173, Oct. 19, 2007
WASHINGTON — Starting next year, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.
The new requirement, which goes into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.
For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings. But beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000, usually on an IRS Form W-2G.
Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amounts that should have been reported.
So that tournament sponsors can comply with this requirement, tournament winners must provide their taxpayer identification number, usually a social security number, to the tournament sponsor. If a winner fails to provide this identification number, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
The IRS reminds tournament winners that, by law, they must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form. This is true for 2007 and earlier years, and will continue to be the case after the new reporting requirement goes into effect.
Related Item: Revenue Procedure 2007-57 in Internal
Wednesday, October 17, 2007
Celebrity Tax Scofflaws in California Announced
from www.latimes.com
California Local News
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
California tax scofflaws include O.J., Sinbad
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
The state releases a list of 224 people who owe money. The goal is to shame people into paying up.
By Patrick McGreevy, Los Angeles Times Staff Writer 12:36 PM PDT, October 17, 2007
SACRAMENTO -- Tapping into the fear of public humiliation to get Californians to pay up on delinquent state income taxes, the state has released a list of California's 224 worst scofflaws, including celebrities Dionne Warwick, O.J. Simpson and comedian Sinbad.The list was originally 250 people. But just the threat of their names going on a public website convinced 26 of the biggest tax scofflaws to agree to settle their bills, bringing in about $300,000 in payments so far, according to State Controller John Chiang.
Related
-
California's official list of the top 250 delinquent taxpayers
"Unfortunately these 250 people have put themselves above the 14 million people who have done the right thing and paid their taxes," Chiang said today.Although a bill approved by the state Legislature compelled the list to be released publicly on the website of the state Franchise Tax Board, Chiang said he supports the action and believes it will be effective in cases in which tax liens and warning letters have failed."Certainly people don't want the public embarrassment of being on the list," the controller said. "I wouldn't want to be on a list with O.J. Simpson."The list says Orenthal Simpson of Miami, Fla., owes $1,435,484 in personal income taxes with a tax lien dating back to 1999.Simpson, the former professional football player and actor, left California for Florida after he was acquitted of murdering his ex-wife and her acquaintance.The list says that the state is owed $2,665,305 in personal income taxes by singer Dionne Warwick of South Orange, N.J., with the tax lien dating back to 1997.The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state, with the tax lien dated from 1999.patrick.mcgreevy@latimes.com
California Local News
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
California tax scofflaws include O.J., Sinbad
April L. Brown / Associated Press
The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state.
The state releases a list of 224 people who owe money. The goal is to shame people into paying up.
By Patrick McGreevy, Los Angeles Times Staff Writer 12:36 PM PDT, October 17, 2007
SACRAMENTO -- Tapping into the fear of public humiliation to get Californians to pay up on delinquent state income taxes, the state has released a list of California's 224 worst scofflaws, including celebrities Dionne Warwick, O.J. Simpson and comedian Sinbad.The list was originally 250 people. But just the threat of their names going on a public website convinced 26 of the biggest tax scofflaws to agree to settle their bills, bringing in about $300,000 in payments so far, according to State Controller John Chiang.
Related
-
California's official list of the top 250 delinquent taxpayers
"Unfortunately these 250 people have put themselves above the 14 million people who have done the right thing and paid their taxes," Chiang said today.Although a bill approved by the state Legislature compelled the list to be released publicly on the website of the state Franchise Tax Board, Chiang said he supports the action and believes it will be effective in cases in which tax liens and warning letters have failed."Certainly people don't want the public embarrassment of being on the list," the controller said. "I wouldn't want to be on a list with O.J. Simpson."The list says Orenthal Simpson of Miami, Fla., owes $1,435,484 in personal income taxes with a tax lien dating back to 1999.Simpson, the former professional football player and actor, left California for Florida after he was acquitted of murdering his ex-wife and her acquaintance.The list says that the state is owed $2,665,305 in personal income taxes by singer Dionne Warwick of South Orange, N.J., with the tax lien dating back to 1997.The comedian and actor Sinbad, whose last name is Adkins, resides in Oak Park, Ill., and is listed as owing $2,138,592 in personal income taxes to the state, with the tax lien dated from 1999.patrick.mcgreevy@latimes.com
Sunday, October 14, 2007
U.S. Income Gap Widens. The Richest Share Hits Record.
from www.yahoo.com
U.S. income gap widens, richest share hits record
By Karey Wutkowski Fri Oct 12, 2:22 PM ET
WASHINGTON (Reuters) - The gap between America's richest and poorest is at its widest in at least 25 years, with the wealthiest taking home a record share of the nation's income that exceeds even the previous high in 2000.
According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.
The previous high over the past 25 years, when such data were compiled, was in 2000 when a bull market brought the figure up to 20.81 percent.
The Tax Foundation, a nonpartisan tax research group based in Washington, said the wealthy benefited in 2005 from a healthy, growing economy and higher-than-average price inflation.
The IRS data included all of the 132.6 million tax returns filed in 2005 with a positive adjusted gross income, or AGI, also including people who did not earn enough to owe taxes.
AGI is a figure used to calculate an individual's income tax liability and includes all gross income adjusted by certain allowed deductions, such as moving expenses, health savings account deductions, alimony paid and retirement contributions.
In 2005, 90.6 million people who filed tax returns paid taxes into the Treasury, and 42 million with a positive AGI used exemptions, deductions and tax credits to reduce their federal income tax liability to zero.
Democratic U.S. presidential candidates have raised the widening income gap as a campaign issue, proposing to raise taxes on wealthier Americans to pay for programs that would benefit lower-income families.
To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.
In 2005, the top 50 percent of American earners brought in 87.17 percent of the nation's income, also an all-time high for the data available.
The previous high for that figure was also in 2000, when the richest 50 percent of Americans earned 87.01 percent of the income.
U.S. income gap widens, richest share hits record
By Karey Wutkowski Fri Oct 12, 2:22 PM ET
WASHINGTON (Reuters) - The gap between America's richest and poorest is at its widest in at least 25 years, with the wealthiest taking home a record share of the nation's income that exceeds even the previous high in 2000.
According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.
The previous high over the past 25 years, when such data were compiled, was in 2000 when a bull market brought the figure up to 20.81 percent.
The Tax Foundation, a nonpartisan tax research group based in Washington, said the wealthy benefited in 2005 from a healthy, growing economy and higher-than-average price inflation.
The IRS data included all of the 132.6 million tax returns filed in 2005 with a positive adjusted gross income, or AGI, also including people who did not earn enough to owe taxes.
AGI is a figure used to calculate an individual's income tax liability and includes all gross income adjusted by certain allowed deductions, such as moving expenses, health savings account deductions, alimony paid and retirement contributions.
In 2005, 90.6 million people who filed tax returns paid taxes into the Treasury, and 42 million with a positive AGI used exemptions, deductions and tax credits to reduce their federal income tax liability to zero.
Democratic U.S. presidential candidates have raised the widening income gap as a campaign issue, proposing to raise taxes on wealthier Americans to pay for programs that would benefit lower-income families.
To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.
In 2005, the top 50 percent of American earners brought in 87.17 percent of the nation's income, also an all-time high for the data available.
The previous high for that figure was also in 2000, when the richest 50 percent of Americans earned 87.01 percent of the income.
Friday, October 12, 2007
Honda Vehicle Certified As Qualified Hybrid Vehicle
from www.irs.gov
Honda Vehicle Certified As Qualified Hybrid Vehicle
IR-2007-168, Oct. 12, 2007WASHINGTON — The Internal Revenue Service has acknowledged the certification by American Honda Motor Company, Inc. that its Model Year 2008 Honda Civic Hybrid CVT meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.The credit amount for the 2008 Honda Civic Hybrid CVT is $2,100.Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.As of June 30, 2007, Honda sold a total of 58,872 qualifying hybrid vehicles.
Related Items:
Honda Vehicle Certified As Qualified Hybrid Vehicle
IR-2007-168, Oct. 12, 2007WASHINGTON — The Internal Revenue Service has acknowledged the certification by American Honda Motor Company, Inc. that its Model Year 2008 Honda Civic Hybrid CVT meets the requirements of the Alternative Motor Vehicle Credit as a qualified hybrid motor vehicle.The credit amount for the 2008 Honda Civic Hybrid CVT is $2,100.Original owners may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.As of June 30, 2007, Honda sold a total of 58,872 qualifying hybrid vehicles.
Related Items:
Thursday, October 11, 2007
IRS Offers Relief for Late S Corporation Elections
from www.irs.gov
IRS Offers Relief for Late S Corporation Elections
IR-2007-166, Oct. 9, 2007
WASHINGTON — Businesses that are eligible to elect S corporation tax treatment now have a simpler process for requesting relief for late elections under a change announced by the Internal Revenue Service today.
Revenue Procedure 2007-62 allows small businesses that missed filing Form 2553, Election by a Small Business Corporation, before filing their first Form 1120S, U.S. Income Tax Return for an S Corporation, to file both forms simultaneously. The change is effective for taxable years that end on or after Dec. 31, 2007. Internal Revenue Bulletin 2007-41, published on Oct. 9, 2007, includes this new guidance.
The IRS cautioned that the requirement for filing Form 2553 to establish the election in advance of filing the initial Form 1120S remains in effect. However, the new process will save time and effort for those taxpayers who can establish reasonable cause for making a late election.
Form 2553 will be updated to reflect the new rules, so taxpayers filing paper Forms 2553 should download the most recent revision from IRS.gov. Form 2553 can also be submitted electronically as an attachment to an e-filed Form 1120S.
There is relief under earlier guidance for late elections for taxpayers who meet certain conditions. Previously, taxpayers had to submit Form 2553 along with a statement explaining the reasons for the late election. The new guidance provides a simplified method to request relief by permitting taxpayers to file their first Form 1120S along with Form 2553 and include the statement on the form.
Small business corporations that are eligible for tax treatment under Subchapter S of the Internal Revenue Code enjoy the advantages of the corporate structure while being taxed similarly to a partnership or sole proprietorship.
The new procedure will reduce taxpayer burden by allowing the agency to process a properly completed tax return and its corresponding election without delays or additional contacts with taxpayers to resolve the issue of a missing election.
The change, based on suggestions from tax professionals and small business owners, resulted from the work of an IRS process improvement team led by the Office of Taxpayer Burden Reduction.
IRS Offers Relief for Late S Corporation Elections
IR-2007-166, Oct. 9, 2007
WASHINGTON — Businesses that are eligible to elect S corporation tax treatment now have a simpler process for requesting relief for late elections under a change announced by the Internal Revenue Service today.
Revenue Procedure 2007-62 allows small businesses that missed filing Form 2553, Election by a Small Business Corporation, before filing their first Form 1120S, U.S. Income Tax Return for an S Corporation, to file both forms simultaneously. The change is effective for taxable years that end on or after Dec. 31, 2007. Internal Revenue Bulletin 2007-41, published on Oct. 9, 2007, includes this new guidance.
The IRS cautioned that the requirement for filing Form 2553 to establish the election in advance of filing the initial Form 1120S remains in effect. However, the new process will save time and effort for those taxpayers who can establish reasonable cause for making a late election.
Form 2553 will be updated to reflect the new rules, so taxpayers filing paper Forms 2553 should download the most recent revision from IRS.gov. Form 2553 can also be submitted electronically as an attachment to an e-filed Form 1120S.
There is relief under earlier guidance for late elections for taxpayers who meet certain conditions. Previously, taxpayers had to submit Form 2553 along with a statement explaining the reasons for the late election. The new guidance provides a simplified method to request relief by permitting taxpayers to file their first Form 1120S along with Form 2553 and include the statement on the form.
Small business corporations that are eligible for tax treatment under Subchapter S of the Internal Revenue Code enjoy the advantages of the corporate structure while being taxed similarly to a partnership or sole proprietorship.
The new procedure will reduce taxpayer burden by allowing the agency to process a properly completed tax return and its corresponding election without delays or additional contacts with taxpayers to resolve the issue of a missing election.
The change, based on suggestions from tax professionals and small business owners, resulted from the work of an IRS process improvement team led by the Office of Taxpayer Burden Reduction.
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