President Obama signed into law on Thursday the Jumpstart Our Business Startups Act, also known as the JOBS Act, which lowers the regulatory and auditing barriers for companies to seek funding and enter the capital markets.

Congress passed the bill late last month with strong bipartisan support, despite opposition from several investor groups and accounting organizations warning that the bill would weaken auditing safeguards and investor protections (see Congress Passes JOBS Act for Small Business).

“I’ve always said that the true engine of job creation in this country is the private sector, not the government,” Obama said in a speech in the White House Rose Garden to mark the signing of the bill. “Our job is to help our companies grow and hire. That’s why I’ve cut taxes for small businesses over 17 times. That’s why every day I’m fighting to make sure America is the best place on Earth to do business.”

The bill packaged together several bills that had made progress in several congressional committees in the past year, but not been enacted into law until now. It was introduced by House Majority Leader Eric Cantor, R-Va., who praised the bill when it was signed into law.

“Today, I was proud to join my colleagues and members of the business community as the President signed the bipartisan JOBS Act into law,” he said in a statement. “This bipartisan package will spur job creation by removing outdated regulations and increasing access to capital so that small businesses and startups can grow and create jobs. The bipartisan JOBS Act is the culmination of hard work by both parties in Congress, the White House and the business community, especially Steve Case. And, it shows we can set aside our differences and work together on areas of common ground to grow the economy and get people back to work.”

The bill aims to reduce the costs of going public by giving companies a temporary reprieve from certain Securities and Exchange Commission regulations, phasing in the regulations over five years to allow smaller companies to go public sooner. The bill would also create a new category of issuers called emerging growth companies, which would retain that status for five years or until they exceed $1 billion in annual gross revenue or become large accelerated filers.

Another provision would remove an SEC regulatory ban preventing small businesses from using advertisements to solicit investors. The bill also removes SEC restrictions on “crowdfunding” so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered “accredited” by the SEC. Companies would be able to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides the SEC with audited financial statements.

Another provision makes it easier for small businesses to go public by increasing the offering threshold for companies exempted from SEC registration from $5 million to $50 million. Another provision removes barriers to capital formation for small companies by raising the shareholder registration requirement threshold from 500 to 1,000 shareholders.

Despite the bipartisan support, the bill provoked warnings from SEC chair Mary Schapiro that it would weaken key investor protections and make it easier for fraudsters to dupe investors. The Consumer Federation of America and the AFL-CIO have also warned about the weakening of investor protections. Some Democratic senators tried to amend the bill to raise the exemption levels. Critics have pointed out that the $1 billion revenue threshold for emerging growth companies would encompass the vast majority of companies that have gone public, not just small businesses.

The Center for Audit Quality, the American Institute of CPAs and the Council of Institutional Investors have also warned about the weakening of Sarbanes-Oxley rules for audits of internal controls by exempting the new category of emerging growth companies from the audits for five years (see Small Business Bill Would Weaken Audit Protections). Under the Dodd-Frank Act of 2010, only companies with a public float of less than $75 million were exempted from Sarbanes-Oxley audits of their internal controls. In the JOBS Act, the market capitalization level would rise to $700 million. Emerging growth companies would be exempt from the internal control audits for five years, or until they reached that $700 million market cap. Instead of three years of audited financial information, emerging growth companies could go public with only two.

Under the bill, there also would be no requirement to comply with new or revised financial accounting standards for public companies from the Financial Accounting Standards Board until the standards were also applicable to private companies.

Other provisions of the bill would make it easier for financial analysts for the financial firms that underwrite initial public offerings to issue reports on the companies.

Brokers and dealers would be able to arrange for communications between securities analysts and potential investors in an emerging growth company that was planning to go public and securities analysts would be able to participate in communications with the management of an emerging growth company alongside people associated with the brokers or dealers working for the company.

Another provision would allow companies to work out disagreements with regulators such as the Securities and Exchange Commission outside public view before they go public. That provision might have allowed companies like Groupon to hide their accounting issues before going public.

The bill would also weaken Dodd-Frank Act provisions giving shareholders a say on executive compensation. There would be no requirement for a shareholder “say on pay” for emerging growth companies.

Despite these drawbacks, there was praise for the bill being signed into law from some quarters. Slava Rubin, the CEO of the global crowdfunding site Indiegogo.com, represented the crowdfunding industry at the White House for the signing of the bill and was invited to participate in a private roundtable discussion before the bill signing as well.  He called the signing of the bill “an incredible day for America.”

“This country was built on entrepreneurship and now every American will have an equal opportunity to stimulate tomorrow’s new companies and job growth,” he added.

The so-called tax-relief company TaxMasters is seeking relief of its own—in bankruptcy court.

The Houston-based firm filed a Chapter 11 bankruptcy petition literally in the 11th hour, just before midnight Sunday, and just before a scheduled trial in which it’s accused of deceptive business practices. In a Travis County courtroom Monday morning, the Texas Attorney General’s office argued the last-minute maneuvering was a ploy to wiggle out of the trial. State District Judge Orlinda Naranjo agreed and began with jury selection Monday afternoon.

Company founder and pitchman Patrick Cox was best known nationwide for its late night television commercials in which he talked tough against the IRS. Cox once spent millions a year on advertising, but in court documents listed assets of less than $50,000. It also estimated liabilities between $1 million and $10 million among creditors numbering between 1,000 and 5,000.

According to court documents, TaxMasters’ advertisements encouraged taxpayers to call its toll-free number for a “free consultation” with a “tax consultant.” But the state alleged callers are not connected to an employee qualified to give tax advice, but rather with a TaxMasters’ salesperson who recommends a “solution” for thousands of dollars. Furthermore, the AG’s office alleged TaxMasters offered payment plans to consumers, but failed to reveal that it would not begin work on a case until the entire fee was paid. In many cases, important IRS deadlines were missed, according to court documents.

The State of Texas originally sued , in May 2010, but last month the I-Team exposed how consumer complaints continued to pour in despite the state’s enforcement action.

One of those alleged victims, Shayne Highfield, said he gave the company more than $3,000 and got nothing in return.

“They offered pennies on the dollar to me—50, 75 percent in the taxes that I owe,” Highfield said. “It was all a fabrication; it was all just a big lie.”

In court Monday, Cox’s attorney John Wauson said the company laid off most of its workers last week, stopped taking in new business, and effectively was shut down. Its offices in the 900 block of Town and Country Lane sit nearly empty.

Even if the State of Texas wins at trial, it’s unclear if consumers seeking refunds will ever see a dime given the bankruptcy petition.

For more information visit www.khou.com.

The Internal Revenue Service is expanding its Fresh Start initiative to help more unemployed and financially stressed taxpayers with installment agreements and relief from failure-to-file penalties.

Under the new Fresh Start provisions, which expanded on an effort that the IRS began in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS said Wednesday it is doubling the dollar threshold for taxpayers eligible for installment agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” said IRS Commissioner Doug Shulman in a statement. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.”

To assist those taxpayers who are most in need, the IRS will grant a six-month grace period on failure-to-pay penalties to certain wage earners and self-employed individuals. However, the request for an extension of time to pay will result in relief from the failure-to-pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two taxpayer categories: wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year; and self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

The penalty relief is also subject to certain income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly, or not exceed $100,000 if he or she files as single or head of household. The penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers who meet those eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov/form1127.

The failure-to-pay penalty is generally half of 1 percent per month, with an upper limit of 25 percent. Under the newly expanded Fresh Start relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS noted that it is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS is strongly encouraging taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, with a 25 percent cap.

Installment Agreements
The new Fresh Start provisions will also provide more taxpayers with the ability to use streamlined installment agreements to catch up on their back taxes.

Effective immediately, the new threshold for using an installment agreement without having to supply the IRS with a financial statement has increased from $25,000 to $50,000, to reduce taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS to stretch out the payment over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers who are seeking installment agreements of over $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. While the penalties are reduced, interest continues to accrue on the outstanding balance. To qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement page on IRS.gov and following the instructions.

These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of the Fresh Start program. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” said Shulman.

Offers in Compromise
Under the first round of Fresh Start last year, the IRS expanded a new streamlined Offer in Compromise program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS said it recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations. For example, the IRS now has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS noted that it examines the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS Web site. For more information please see, IRS Expands Help to Struggling Taxpayers at AccountingToday.com.

Berkshire Hathaway chairman Warren Buffett hinted in his annual letter to shareholders that the holding company’s nearly 18,000-page tax return may merit the attention of the Guinness Book of World Records.

Referring to the people who work with the operating managers, he noted, “Equally important, however, are the 23 men and women who work with me at our corporate office (all on one floor, which is the way we intend to keep it!). This group efficiently deals with a multitude of SEC and other regulatory requirements and files a 17,839-page Federal income tax return—hello, Guinness!—as well as state and foreign returns.”

Even at that length, though, Berkshire’s tax return would be dwarfed by General Electric’s, which reportedly runs about 57,000 pages, so it probably won’t end up in the record books, for this year at least.

Buffett’s tax policies have generated considerable attention in the past year after he wrote a New York Times editorial calling for changes in the Tax Code to tax the “super-rich” at a higher rate to ensure they don’t pay a lower tax rate than their secretaries (see Buffett Says Tax Code is ‘Coddling the Super-Rich’). The editorial led to the “so-called” Buffett Rule, which President Obama cited in his State of the Union address and included in his 2013 budget plan. However, Buffett has also been criticized for the disputes that his company has gotten into with the Internal Revenue Service over the back taxes that the IRS says it owes.

“Investing is often described as the process of laying out money now in the expectation of receiving more money in the future,” Buffett wrote in his shareholder letter Saturday. “At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power—after taxes have been paid on nominal gains—in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.” For more information please see Berkshire Tax Return Could be One for the Record Books on AccountingToday.com.

The IRS estimates that half of these potential 2008 refunds are $637 or more.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were:

• $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children,
• $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and
• $12,880 ($15,880 if married filing jointly) for those with no qualifying children.

For more information, visit the EITC Home Page on IRS.gov.

Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2008, 2009 or 2010 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by ordering it on IRS.gov, filing Form 4506-T, or by calling 800-908-9946.

Individuals Who Did Not File a 2008 Return with a Potential Refund

State	Individuals	Median Potential Refund	Total Potential Refunds ($000)*
Alabama	18,400	$641	$15,738
Alaska	5,800	$641	$5,952
Arizona	29,000	$558	$24,913
Arkansas	9,600	$620	$8,152
California	122,500	$595	$112,201
Colorado	20,500	$589	$18,909
Connecticut	12,500	$697	$13,893
Delaware	4,200	$644	$3,784
District of Columbia	4,000	$642	$3,791
Florida	70,400	$650	$66,974
Georgia	35,800	$581	$30,661
Hawaii	7,600	$714	$8,307
Idaho	4,700	$541	$3,878
Illinois	40,800	$692	$40,712
Indiana	21,800	$664	$19,590
Iowa	10,600	$658	$9,295
Kansas	11,500	$631	$10,084
Kentucky	12,300	$640	$10,501
Louisiana	20,500	$662	$18,859
Maine	4,000	$579	$3,248
Maryland	24,600	$641	$22,591
Massachusetts	23,900	$699	$22,957
Michigan	33,300	$660	$30,903
Minnesota	15,200	$584	$12,772
Mississippi	9,900	$591	$8,254
Missouri	21,600	$593	$18,213
Montana	3,600	$599	$3,192
Nebraska	5,100	$623	$4,371
Nevada	14,500	$619	$13,381
New Hampshire	4,300	$733	$4,518
New Jersey	31,300	$716	$31,185
New Mexico	8,000	$611	$7,420
New York	60,300	$686	$61,240
North Carolina	30,800	$558	$24,997
North Dakota	2,000	$625	$1,895
Ohio	36,400	$622	$31,018
Oklahoma	16,800	$620	$14,787
Oregon	18,500	$527	$14,819
Pennsylvania	38,700	$695	$35,565
Rhode Island	3,400	$674	$3,040
South Carolina	12,200	$547	$10,158
South Dakota	2,300	$669	$2,234
Tennessee	18,400	$626	$16,130
Texas	96,200	$689	$97,057
Utah	7,800	$536	$6,676
Vermont	1,700	$647	$1,410
Virginia	30,800	$624	$28,670
Washington	29,900	$705	$32,138
West Virginia	4,300	$687	$4,068
Wisconsin	14,100	$592	$11,885
Wyoming	2,600	$773	$2,919
Grand Total	1,089,000	$637	$1,009,905

*Excluding the Earned Income Tax Credit and other credits.

For more information please see IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return at IRS.gov

With Congress voting last week to extend the payroll tax holiday, 160 million workers will be spared an immediate tax hike. But the move leaves them facing an even bigger hit in January, when the holiday ends and the payroll tax joins a long list of levies already set to sharply and abruptly go up.

On Dec. 31, the George W. Bush-era tax cuts are scheduled to expire, raising rates on investment income, estates and gifts, and earnings at all levels. Overnight, the marriage penalty for joint filers will spring back to life, the value of the child credit will drop from $1,000 to $500, and the rate everyone pays on the first $8,700 of wages will jump from 10 percent to 15 percent.

The Social Security payroll tax will pop back up to 6.2 percent from 4.2 percent under the deal approved Friday by Congress. And new Medicare taxes enacted as part of President Obama’s health-care initiative will for the first time strike high-income households.

The potential shock to the nation’s pocketbook is so enormous, congressional aides have dubbed it “Taxmageddon.” Some economists say it could push the fragile U.S. economy back into recession, particularly if automatic cuts to federal agencies, also set for January, are permitted to take effect.

Obama and congressional Republicans say they hope to avert the coming blow, which stands to suck roughly $500 billion out of the economy in 2013. But both sides are bracing for another epic showdown in the weeks after the November election, as Democrats prepare to use Taxmageddon to break the partisan impasse over taxes that has blocked action on an array of issues, from modernizing the nation’s infrastructure to taming the national debt.

“I see the framework of a big agreement in the lame-duck [congressional session] to finally put this divisiveness behind us,” said Rep. Richard E. Neal (D-Mass.), a senior member of the tax-writing House Ways and Means Committee. “Obama’s going to have great leverage to get something done.”

Since they took control of the House last year, congressional Republicans have needed nothing from Obama. They were the holdouts, demanding big cuts in federal spending in exchange for helping Obama keep the government open and raise the legal limit on government borrowing, known as the debt ceiling.

But in December, deadlock will cut the other way. Republicans need Obama if they want to prevent one of the biggest tax increases in U.S. history — nearly $5 trillion over the next decade, by official estimates — and block deep cuts to the Pentagon that could be triggered as part of last summer’s debt-ceiling accord.

The tax shock is set to occur after the Nov. 6 election but before the new Congress — and potentially a new president — take office two months later. While the outcome of the contest is likely to color the tax debate, Obama will either be freshly reelected or on his way out and, therefore, free to play hardball with Congress.

White House officials say Obama will not sign another full extension of the Bush tax cuts, as he did in December 2010. Obama is demanding a partial extension that would preserve the cuts for middle-class taxpayers but permit rates to rise on household income over $250,000.

“The president has made clear that he will veto any bill that extends the Bush-era tax rates for the wealthiest 2 percent of individuals,” White House spokeswoman Amy Brundage said. “We will continue to fight for tax relief for the middle class and those trying to get in it, while insisting on a policy that asks the wealthiest individuals to pay their fair share.”

Many Republicans and outside analysts say they doubt Obama would make good on his veto threat. Allowing all of the Bush tax cuts to expire would harm middle-class taxpayers, along with the wealthy, and carry grave risks for the economy.

“My forecast is that tax rates are not going to rise for everyone on January 1, 2013,” said Mark Zandi, chief economist for Moody’s Analytics, who predicted that Taxmageddon, combined with the cuts from the debt-ceiling deal, would slash economic growth by nearly three percentage points next year. “That would be pretty difficult for the economy to overcome.”

Still, Democratic spines may be stiffened by polls showing broad support for their latest tax strategy, which emphasizes higher taxes for millionaires rather than the merely well-off. A recent Washington Post-ABC News poll found that 72 percent of Americans support raising taxes on people with incomes over $1 million a year, in line with Obama’s call for a “Buffett Rule” that would require those families to pay an effective tax rate of at least 30 percent.

“The tax issue, for the first time in decades, has flipped so Democrats actually have the high ground,” said Sen. Charles E. Schumer (N.Y.), the No. 3 Senate Democrat and the man who came up with the idea of raising the income threshold. “Most Americans share our belief that, while the middle class should not pay an increase in taxes, the wealthiest among us should.”

He said Senate Democrats plan to press that advantage in the coming months, staging numerous votes on issues of tax “fairness.” Republican reluctance to target the rich is their “Achilles’ heel” politically, he said.

Schumer predicted that before November, Republicans would drop their opposition to tax increases for millionaires. “Politically, it’s going to be very harmful to say, ‘I’m not for something like the Buffett Rule, when even 60 percent of Republicans are for it,” he said.

Many Republicans maintain that they would never raise taxes on a group the GOP views as small-business owners and “job creators.” Besides, Republican strategists said, they are likely to have bargaining chips of their own in December.

For instance, without congressional action, nearly 30 million families will have to pay the alternative minimum tax, which adds thousands of dollars to the average tax bill, in April 2013. Congress typically protects those people through annual adjustments, and the latest “AMT patch” expired in December.

Another potential GOP tactical advantage: the debt ceiling. Treasury Secretary Timothy F. Geithner acknowledged in congressional testimony last week that Obama may need Congress to raise the legal limit on borrowing, now set at $16.4 trillion, before the end of the year.

“This idea that they hold all the cards? They don’t,” said a senior Republican Senate aide. “We’ve got more leverage than these crowing Democrats like to think.”

Then there’s the matter of the election itself. With control of both chambers of Congress and the White House all potentially in play Nov. 6, the voters could upend Democrats’ best-laid plans. If Republicans claim the White House and the Senate after an election waged in part over tax policy, demoralized Democrats might agree to extend all the Bush cuts without a fight.

“It depends on who’s president,” said Sen. Orrin G. Hatch (Utah), the senior Republican on the Senate Finance Committee. If Obama is reelected and Democrats hold the Senate, he said, “it makes it much more difficult” for Republicans to press for a full extension.

While some Republicans are ready to man the tax barricades, among others the GOP’s anti-tax orthodoxy is starting to crack. Forty Republicans in the House and 32 in the Senate have endorsed the concept of a grand bargain to tackle the national debt, which would require Republicans to raise taxes and Democrats to accept cuts in federal health and retirement benefits. With Obama continuing to call for a grand bargain, that group is working with Democrats behind the scenes to draft a plan able to win bipartisan support.

Meanwhile, House Armed Services Committee Chairman Howard “Buck” McKeon (R-Calif.) has said he would take higher taxes over defense cuts. And during unsuccessful debt-reduction talks last year, Sen. Patrick J. Toomey (R-Pa.), one of the Senate’s most ardent conservatives, drafted a plan that would have included $300 billion in new revenue over a decade.

“I think one of the reasons that you saw Pat Toomey offer what he did is a realization that we’re going to have a $5 trillion tax increase at the end of the year,” said Sen. Bob Corker (R-Tenn.). “Hopefully, this year we’ll actually do something constructive and work out something that’s sensible over the long haul.”

For more information please see Taxageddon looms at end of payroll tax holiday at the Washingtonpost.com

The IRS’ recently released tax gap study, which measures data from 2006 returns, shows that the tax gap has increased from $345 billion dollars a year in 2001 to $450 billion in 2006. The majority of the tax gap (83%) can be attributed to underreporting, which includes understating income and overstating deductions. The IRS has several tools to narrow the underreporting tax gap, including pre-refund notices and return rejections, underreporter inquiries and, most significantly, audits.

The IRS will focus its limited audit resources in the following areas, which have the highest rates of misreporting.

On Jan. 26, the IRS also modified its online payment arrangement (OPA) application at IRS.gov to allow for taxpayers to request installment agreements for balances of up to $50,000. The current application allows for balances of up to $25,000 and payment terms of up to five years.

Information reporting and disclosures

The IRS continues to use tax return disclosures and third-party information to better select taxpayers for audit. Specifically, look for the IRS to use information to address the following issues:

• Misreporting stock basis: The IRS issued regulations under a new law that will require stock brokers and mutual fund companies to report basis and other information for most stock purchased in 2011 and all stock purchased in 2012 and later. Form 1099-B will report the information to investors and the IRS. The IRS will use the underreporter notice program and audits to correct perceived misreporting in this area.
• Underreporting business income: Form 1099-K reporting is now required for recipients of payment card transactions or payments through third-party network arrangements, such as PayPal. The IRS expects to receive more than 56 million Forms 1099-K in 2012 that it can match against filed and unfiled tax returns.
• Uncertain tax position reporting for large corporations: In 2011, certain large corporations were required to start disclosing an uncertain tax position (UTP) on their 2010 tax returns. A UTP is generally defined as a stance on a tax return in which the corporation sets aside a reserve to either pay the higher amount of tax later or litigate the matter in the future. The transparency in reporting a UTP allows the IRS to better select returns for audit.
• Offshore tax disclosure compliance: The IRS and the Department of Justice are continuing to press foreign financial institutions, especially Swiss banks, to disclose US account holders. The IRS has embarked on its third voluntary disclosure program to allow taxpayers to disclose foreign assets and income.
• Worker classification: The IRS is conducting a three-year National Research Program study of employment tax noncompliance. The tax gap study concluded that 17% of the tax gap can be attributed to underreporting and underpayment of employment taxes. The main issue is proper worker classification – that is, independent contractor or employee. The IRS knows there is noncompliance in this area. In fact, employment tax audits have a change rate of more than 86%. The IRS has a strategic motivation for reclassifying workers as independent contractors: Form W-2 recipients are 99% compliant, whereas the misreporting percentage of independent contractors and small business owners is 43%.

Small businesses

According to the IRS, small business underreporting makes up 40% of the tax gap, or about $179 billion a year. With a limited budget for 2012, the IRS will continue to focus on this area.

• Cash-based businesses: Taxpayers who do not receive information statements, such as many small cash-based businesses, are the most noncompliant. An IRS study showed that information reporting and fear of an audit were important factors contributing to voluntary compliance, ranking directly after a taxpayer’s personal integrity. The IRS will continue to focus on retail, web and service businesses in audits to find unreported income.
• Deduction of S corporation and partnership losses: In 2009, the Government Accountability Office (GAO) reported that 68% of all S corporation returns misreported at least one item. However, more alarming to the IRS were inaccurate S corporation losses taken on shareholder tax returns. The losses were most often inaccurate because of insufficient basis to deduct the loss. The average error per return was $21,600. Because more than 90% of all S corporations use a paid preparer, look for the IRS to leverage tax preparers to correct this misreporting and deter noncompliance by proposing preparer penalties in this area.
• S corporation shareholder compensation: The same 2009 GAO study also concluded that S corporation shareholders are underpaying themselves to avoid employment taxes on wages. About 13% of S corporations are paying inadequate wage compensation and making payments in the form of distributions that are not subject to self-employment tax (unlike partnership distributions). The median misreporting adjustment for underpaid shareholder compensation was $20,127 – a loss of about $1.5 billion a year in unreported employment taxes. The IRS has already shown an interest in examining more 2011 S corporation returns.

For more information please see New IRS tax gap numbers highlight future audit areas at Beyond415.com

Senate Democratic leaders said Friday they were crafting a backup plan to extend the payroll tax cut for an entire year, in case the conference committee tasked with coming up with a deal falls short.

In a conference call, Senate Majority Leader Harry Reid accused congressional Republicans of gumming up the works on the payroll tax by trying to tack unrelated issues on to an extension.

“I have great confidence in our conferees, but I’m not going to stand by when the GOP slows the process,” the Nevada Democrat said.

Reid’s comments come as Democrats and Republicans on the conference committee, which includes 20 lawmakers, are widely seen to still be far apart on a variety of issues — including, perhaps most importantly, how to pay for whatever package they develop.

The statements also drew a quick rebuke from House Speaker John Boehner, with the Ohio Republican noting that the Senate has yet to pass its own full-year extension of the tax break, which would affect some 160 million Americans.

“It would seem those energies could be better directed toward the conference negotiations themselves, in which Senate Democrats have not actually presented a full plan,” Boehner said in a Friday statement. “You can’t have a ‘backup plan’ if you haven’t offered anything to back up.”

The House passed a yearlong extension in December, but it incorporated items that Democrats oppose and that Reid was presumably referencing with his Friday comments, including a delay of industrial boiler regulations and certain reforms to the federal unemployment insurance system.

GOP conferees would like to see some of those items tucked into a package extending the payroll tax cut for a full year.

The Senate passed a two-month extension of the tax break after being unable to pass a full year of the cut. House Republicans, after taking a political pounding, eventually accepted that idea, leading to the current conference committee.

In addition to the payroll tax cut, unemployment benefits for millions of Americans will also expire if lawmakers don’t act by Feb. 29, and doctors treating Medicare patients would see a 27 percent cut in their reimbursement rate.

For the most part, conferees have said they want to see those three items extended for a full year.

But the conference committee, which will meet again on Tuesday, has also spent much of its time discussing issues in other areas, such as the Keystone XL oil sands pipeline and expired tax provisions.

The two sides also have separate visions on how to pay for any extension, as illustrated by the Friday statements from Reid and Boehner.

Reid reiterated that a surtax on millionaires could be used to pay for the tax relief, an idea embraced by other Democrats but that has failed to make it out of the Senate on multiple occasions.

Boehner, meanwhile, noted that a federal pay freeze, one of the GOP’s preferred offsets, easily passed the House this week. FOr more information please see, Reid, Boehner spar over payroll tax on The Hill.

The United States created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama.

Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.

The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.

“More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

The payroll gains were widespread – from retail to temporary help, and from construction to manufacturing – an indication the recovery was becoming more durable.

A survey of households showed the unemployment rate declined even as new job seekers flooded into the labor force. Economists had expected the jobless rate, which has now fallen 0.8 percentage point since August, to hold steady.

“I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.

The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.

The fairly upbeat data buoyed stocks on Wall Street, with the tech-heavy Nasdaq Composite index hitting an 11-year high. The Dow Jones industrial average rose to a near four year high, while the Standard & Poor’s index extended its 2012 advance to about 7 percent.

U.S. Treasury debt prices tumbled as investors dialed back expectations on Fed easing. The dollar was little changed against a basket of currencies after rising earlier in the session.

The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.

Officials at the central bank have been debating whether to buy more bonds – a program dubbed QE3 – to drive interest rates lower. It also raised doubts about the Fed’s expectation that it could hold interest rates near zero at least through late 2014.

“At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance,” said Michael Feroli, an economist at JPMorgan in New York.

Interest rate futures indicated that at least some traders were beginning to lay bets the Fed could move interest rates up in early 2014.

Fed fund futures were pricing in a 38 percent chance of a January 2014 rate hike, up from 29 percent before the report, and the first better than even chance of a rate hike was in April 2014, according to CME Group, where the contracts are traded.

However, economists at most leading Wall Street firms still believe the Fed will undertake another bond-buying program, according to a Reuters poll.

DON’T MUCK IT UP

Obama welcomed the strong jobs report and urged Congress to extend a payroll tax cut and benefits for long-term unemployed, which expire at the end of this month.

“Now is not is not the time for self-inflicted wounds to our economy. I want to send a clear message for Congress. Do not slow down the recovery that we are on, don’t muck it up,” he said at a firehouse in Arlington, Virginia.

Republicans acknowledged the improvement in the labor market, but said the jobless rate was still too high.

“Our economy still isn’t creating jobs the way it should be and that’s why we need a new approach,” said House Speaker John Boehner.

While employment growth has quickened there are no jobs for three out of every four unemployed people and 23.8 million Americans are either out of work or underemployed. The level of employment is still 5.57 million from its pre-recession level.

But steady progress is being made. The economy added 60,000 more jobs in November and December than previously reported.

In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in U.S. economic growth in the first quarter were not yet impacting on companies’ hiring decisions.

Employment in the private sector surged 257,000 – the largest gain since April. Government payrolls fell 14,000, the least since September.

U.S. economic growth accelerated to a 2.8 percent annual rate in the final three months of 2011, but it was widely expected to slow as businesses ease back on efforts to rebuild inventories and exports slip amid a likely recession in Europe.

Some economists cautioned that January’s jobs figures could overstate the pulse of the recovery, citing still lackluster consumer confidence, income and spending growth.

While some said the jobless rate could drop below 8 percent by year end, others warned it would likely move up in the near-term as people who had given up the search for a job re-enter the workforce.

“For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York.

CAUTIOUS OPTIMISM

The unemployment rate has now declined for five straight months, although part of the drop reflects discouraged Americans giving up the hunt for work.

A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, slipped to a near three-year low of 15.1 percent in January from 15.2 percent in December.

Revisions to the payrolls figures showed 180,000 more jobs were created last year than previously believed.

Mild winter weather boosted employment last month in construction, which added 21,000 jobs after a 31,000 increase in December. Manufacturing payrolls surged 50,000, the largest gain in a year, after rising 32,000 the prior month.

Overall, the goods-producing sector added 81,000 jobs last month, the most since January 2006.

Transportation and warehousing employment increased 13,100 and courier jobs only fell 1,500. Last month, the Labor Department reported a large increase in courier jobs in December, but revisions showed they actually declined.

Retail employment rose 10,500 after gaining 6,200 in December. Temporary help services jumped 20,100 after rising 8,300, a potentially good sign for future permanent hiring. For more information please see Jobless rate at 3-year as payrolls surge on Reuters.

Ralcorp said Friday that the IRS ruling confirmed the tax-free nature of the distribution of at least 80 percent of the outstanding shares of common stock of Post Holdings, Inc. to Ralcorp shareholders and related transactions.

Based on certain facts, assumptions, representations and undertakings set forth in the ruling, the ruling concludes that for U.S. federal income tax purposes, the separation of the Post cereals business will qualify as a tax-free distribution to Ralcorp and to the holders of common shares of Ralcorp (except in respect of cash received in lieu of fractional shares).

Ralcorp also said that subject to the consummation of the separation, the common stock of Post Holdings, Inc. has been approved for listing on the New York Stock Exchange under the symbol “POST.”

In connection with the separation, Ralcorp anticipates receiving approximately $900 million from the Post spin-off. The Ralcorp board intends to use the proceeds to reduce its debt, aggressively pursue private-brand acquisitions and pursue additional share repurchases under the company’s remaining share repurchase authorization of approximately five million shares. In addition, Ralcorp said it expects to retain up to 20 percent of the outstanding shares of Post.

Ralcorp had announced last week that its board approved the separation of Post, subject to the satisfaction or waiver of certain conditions including, but not limited to, the Registration Statement on Form 10 (the “Form 10″) for Post common stock being cleared by the Securities and Exchange Commission, the receipt of an opinion of tax counsel, the completion of related financing transactions, and the other conditions summarized in the preliminary form of information statement included in Amendment No. 3 to the Form 10 filed by Post with the SEC. The transaction does not require approval from Ralcorp shareholders.

Amendment No. 3 to the Form 10 includes as Exhibit 2.1, a preliminary form of the Separation and Distribution Agreement, including the closing conditions. The filings are available at www.sec.gov. For more information please see, IRS Issues Private Letter Ruling on Breakfast Cereals on Accounting Today.