Posts Tagged ‘2011’

Data show IRS is auditing more wealthy taxpayers

Friday, January 6th, 2012

From – The Washington Post

WASHINGTON — If you earn less than $200,000 a year, there’s a strong chance you don’t have to worry about an Internal Revenue Service audit. But if you make more than $1 million annually, the odds have been rising that you’ll be hearing from the tax man.

The IRS released figures Thursday showing that 12 percent of millionaire earners were audited last year. That’s up from 8 percent in 2010 and 6 percent in 2009.

The data shows that for those making under $200,000, the rate has stayed steady at around 1 percent in recent years.

IRS officials said the growing audit rate for high earners is aimed at demonstrating that the tax code is being enforced fairly and is unrelated to President Barack Obama’s recent proposals to boost taxes on the rich. The White House and congressional Democrats are expected to continue taking similar populist stances with the approach of this November’s presidential and congressional elections.

Steven Miller, deputy IRS commissioner for services and enforcement, said in an interview that the higher audit rates for the highest earning individuals are designed to “assure that those at the lower end of the spectrum know that those at the higher end of the spectrum are subject to the same rules and enforcement as everyone else.”

“We base our audit decisions on tax issues, nothing else,” said IRS spokeswoman Michelle Eldridge. “We don’t play politics here.”

Four percent of individuals earning $200,000 and up were audited in 2011, up from around 3 percent the previous five years.

The IRS only provided data for three categories of individuals’ income: those earning under $200,000 annually, those making $200,000 and up and those earning $1 million and up.

Overall, the agency says, it audited nearly 1.6 million of 141 million individual returns in 2011, or just over 1 percent. That rate has been growing gradually and is almost double the 0.6 percent audited in 2001, the IRS said.

Only about a quarter of IRS’ audits involve dreaded meetings between taxpayers and agency officials. The rest are carried out using letters.

In 2010 — the most recent year available — more than 8 in 10 individuals audited ended up paying additional taxes.

Altogether, IRS enforcement efforts — including audits, legal action and other tactics — resulted in an extra $55 billion being collected. That’s down almost $3 billion from 2010, which Miller blamed on a falloff in estate taxes and corporations writing off their losses.

That $55 billion was a small part of the $2.3 trillion the agency collected in revenue last year.

The IRS also audited a greater proportion of large corporations than smaller ones, the data shows.

Last year, 1 percent of corporations with assets under $10 million were audited. Among corporations with assets of $250 million and up, 28 percent were audited.

The IRS figures also showed that:

In 2011, the agency garnisheed wages or seized money from bank accounts 3.7 million times, put liens on property 1 million times and seized 776 pieces of property.

Seventy-seven percent of individual returns were filed electronically last year, up from 69 percent in 2010.

Seventy percent of callers to IRS taxpayer information telephone lines got through, slightly less than the 74 percent who reached someone in 2010. Miller attributed that to budget cuts to the agency.

The information IRS officials dispensed over the phone to taxpayers was accurate 93 percent of the time, the same as the previous year.

The IRS website, http://www.irs.gov, was visited 319 million times in 2011, a slight increase.

The data was presented by federal fiscal years, which begin on the previous Oct. 1.

For more information please see IRS says more millionaire earners face audits, rate stable for those earning below $200k at The Washington Post.

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Tax issues to watch for when working from home

Friday, January 6th, 2012

From – Journal of Accountancy

With unemployment still near the highest rate in decades, it is not surprising to find many people working out of their homes. Now may be a good time to review the criteria for claiming a deduction for the business use of part of a person’s residence.

Your home office must be used in a trade or business activity. You cannot take a deduction if you use your home for a profit-seeking activity that is not a trade or business. For example, if you use part of your home to manage your personal investments, you cannot take a home office deduction.

The home office must be used regularly and exclusively for business. You must regularly use a room or other separately identifiable area of your home only for your business. You do not meet this requirement if you use the area for both business and personal purposes. For example, an attorney who writes legal briefs at the kitchen table cannot claim a home office deduction for the kitchen.

You do not have to meet the exclusive-use test if you use part of your home to store inventory or product samples or as a day care facility.

Your home office must be one of the following:

  • Your principal place of business. Your home office also will qualify as your principal place of business if you use it regularly for administrative activities and you have no other fixed location where you conduct substantial administrative activities; or
  • A place to meet with patients, clients or customers in the normal course of your business. Using your home for occasional meetings and telephone calls is insufficient; or
  • A separate structure not attached to the dwelling unit used for trade or business purposes. The structure does not have to be your principal place of business or a place where you meet patients, clients or customers. For example, John operates a floral shop in town. He grows plants in a greenhouse behind his home and sells them in his shop. He uses the greenhouse exclusively and regularly in his business. Even though it is not his principal place of business, because it is separate from his dwelling, he can deduct the expenses for its use.

If you are an employee, you must use your home office for the convenience of your employer. If the employer does not require the employee to work from home and provides an office or work space elsewhere, a home office is likely to be considered a matter of the employee’s convenience and therefore not deductible.

Even if the taxpayer’s home office meets the above rules, the deduction may be limited. Expenses attributable to business use that you could deduct even if the home were not used for business, such as home mortgage interest and real estate taxes, are fully deductible. Otherwise, home office expenses are deductible only to the extent of gross business income, reduced by other allowable business expenses unrelated to the home; any expenses that are not deductible due to the income limitation may be carried forward.

For more information please see Home Office Deduction at Journal of Accountancy.

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Congress Passes Temporary Payroll Tax Cut Extension

Tuesday, December 27th, 2011

From – Journal of Accountancy

The reduced 4.2% Social Security tax rate will remain in effect at least through February.

The Senate and the House of Representatives on Friday both agreed by unanimous consent to extend the reduced rate, and President Barack Obama signed the bill—the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765)—the same day. The reduced rate had been scheduled to end after Dec. 31.

In the new year, a conference committee of representatives and senators will be appointed to discuss extending the reduced rate for the rest of 2012.

The employee portion of the Social Security tax was reduced from 6.2% of the first $106,800 of wages to  4.2% for 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. The employer portion remained at 6.2%. Under the law enacted Friday, the 4.2% rate is extended through Feb. 29, 2012.

The act provides special rules for 2012 so that taxpayers with self-employment income and income from employment in excess of $18,350 (one-sixth of the 2012 Social Security wage base of $110,100) do not receive an extra benefit. If a full-year extension of the payroll tax cut is not enacted, taxpayers with income from employment for January and February that exceeds $18,350 will be required to recapture the excess benefit they receive. The recapture provision was included instead of a cap on the amount of employment income because of the compliance difficulties that would cause employers.

Because the extension affects withholding and was enacted only a little over a week before the higher payroll tax was scheduled to go into effect, it is not clear how well employers and payroll companies will be able to handle that change. The IRS on Friday notified employers that they should implement the lower payroll tax rate as soon as possible in 2012, but not later than Jan. 31 (IR-2011-124). The IRS also said that if an employer overwithholds during January, it should make an offsetting adjustment in workers’ pay as soon as possible, but not later than March 31, 2012. The IRS also said that it will issue more guidance on implementing the provisions of the two-month extension, including revised employment tax forms and information for employees who may be subject to the recapture provision.

The act also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors.

Congress’ use of unanimous consent to approve the extension allowed it to send the bill to the president without requiring lawmakers who had left the capital to return to Washington. For more information please visit Congress passes temporary payroll tax cut extension on Journal of Accountancy.

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Senators Introduce Online Sales Tax Bill

Tuesday, November 15th, 2011

From www.accountingtoday.com

A bipartisan group of 10 senators introduced legislation Wednesday that would give states the option to collect the sales taxes they are owed under current law from out-of-state businesses, rather than rely on consumers to pay those taxes to the states.

The bill, known as the Marketplace Fairness Act, would give states the option to collect sales and use tax revenues from out-of-state sellers through a new, simplified tax system. Among the senators sponsoring the bill are Lamar Alexander, R-Tenn., Dick Durbin, D-Ill., and Mike Enzi, R-Wyo.

The bill resembles another piece of legislation, the Main Street Fairness Act, which was introduced in July by Durbin and several other Democratic lawmakers, but now includes support from some key Republicans and conservative groups (see Congress Introduces Bill to Collect Online Sales Taxes).

Like the earlier bill, it relies on the Streamlined Sales and Use Tax Agreement that is already in use by 24 states. However, the emphasis with the new bill is on the fact that it would not impose any new taxes, but merely collect taxes that are already owed, and it gives states the option not to collect the sales taxes, preserving states’ rights.

“This legislation would give states the ability to close the online sales-tax loophole, created when out-of-state sellers don’t collect, and purchasers don’t pay, the state sales tax—even though they still owe it,” Alexander said in a statement. “The legislation addresses a states’ rights issue: preserving the right of states to collect—or to decide not to collect—taxes that are already owed under state law.”

The legislation would streamline the country’s more than 7,500 diverse sales tax jurisdictions and provide two options by which states could begin collecting sales taxes from online and catalog purchases.

States that voluntarily become member states of the Streamlined Sales and Use Tax Agreement, or SSUTA, would be able to require remote sellers to collect and remit sales and use taxes after 90 days.

The agreement would help harmonize states sales and use tax rules, bring uniformity to the definitions of items in the sales tax base, reduce the paperwork burden on retailers, and incorporate new technology to modernize administrative procedures.

States that do not wish to become members of SSUTA would be allowed to collect the taxes only if they adopt certain minimum simplification requirements and provide sellers with additional notices on the collection requirements.

“For over a decade, Congress has been debating how to best allow states to collect sales taxes from online retailers in a way that puts Main Street businesses on a level playing field with online retailers,” said Enzi. “This bill empowers states to make the decision themselves. If they choose to collect already existing sales taxes on all purchases, regardless of whether the sale was online or in store, they can. If they want to keep things the way they are, it’s a state’s choice.”

Enzi read a letter from Amazon.com supporting the bill. Amazon also released a statement conforming its support. “Amazon strongly supports enactment of the Enzi-Durbin-Alexander bill and will work with Congress, retailers, and the states to get this bi-partisan legislation passed,” said Amazon vice president of global public policy Paul Misener. “It’s a win-win resolution—and as analysts have noted, Amazon offers customers the best prices with or without sales tax.”

Alexander noted that a version of the legislation introduced in the House has also won the support of the American Conservative Union.

The legislation exempts sellers who make less than $500,000 in total remote sales in the year preceding the sale to qualify for an exemption and not be required to collect the tax.

“Most small business people don’t want a government handout,” said Durbin. “They don’t want special treatment. They just want to be able to compete fairly against other businesses. That’s why I have worked with Senators Enzi and Alexander to introduce the Marketplace Fairness Act—a bipartisan bill to level the playing field for local main street businesses.”

Senators Tim Johnson, D-S.D., John Boozman, R-Ark., Jack Reed, D-R.I., Roy Blunt, R-Mo., Sheldon Whitehouse, D-R.I., Bob Corker, R-Tenn., and Mark Pryor, D-Ark., are also co-sponsors of the legislation.

Under the Supreme Court’s 1992 Quill decision, retailers are only required to collect sales tax in the states where they also have a physical presence, also known as nexus, while consumers are required to report to state tax departments any sales taxes they owe for online purchases. As a result, local retailers are at a competitive disadvantage because they must collect sales taxes at the point of sale while out-of-state retailers, including many large online and catalog retailers, in effect give their customers a discount by collecting no state or local sales taxes.

As with the earlier bill introduced by Durbin, eBay registered its objection, however. “This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors,” said eBay vice president for government relations and deputy general counsel Tod Cohen. “It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”

Alexander predicted on the Senate floor that the legislation ultimately would be passed. “This problem’s been there for a long time,” he said. “It’s had the opposition of conservatives worried about taxes. It’s had the opposition of Amazon and other online sellers. The Supreme Court said 20 years ago that it was too complicated for out-of-state vendors to figure out how to collect sales taxes when something is purchased and sent to the state, which is what the Main Street seller does, and maybe that was true 20 years ago. But the Supreme Court said 20 years ago, it invited us in Congress to solve this problem, and Senator Enzi and Senator Durbin with this legislation in my opinion have solved the problem, and this is going to happen. I’m not presumptuous enough to predict what the United States Congress will do and what the President will sign, but I think I’ve been around long enough, and I’ve watched Congress enough to say this is going to happen. And if I were a governor, or I were an online retailer, or I were a catalog retailer, I would make my plans to conduct my business in this way.” For more information please see Senators Introduce Online Sales Tax Bill at www.accountingtoday.com.

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30 Major Corporations Avoided Federal Income Taxes

Friday, November 4th, 2011

From-www.accountingtoday.com

The 280 most profitable U.S. corporations are sheltering half their profits from federal income taxes, and 30 of them paid less than zero in the last three years, according to a new study. The study also found that 78 of the corporations paid no federal income tax in at least one of the last three years. The study, by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, expands on a preliminary report in June by the advocacy group that sparked controversy (see 12 Major Corporations Pay Less Than Zero in Taxes).

The average effective tax rate for all 280 companies in the study over the three-year period was 18.5 percent. For the period 2009-2010 it was 17.3 percent, less than half the statutory rate of 35 percent. Total tax subsidies given to all 280 profitable corporations amounted to $222.7 billion from 2008-2010. Thirty companies enjoyed a negative income tax rate over the three year period, despite combined pre-tax profits of $160 billion.

Wells Fargo topped the list of 280 U.S. corporations receiving the most in tax subsidies, getting nearly $18 billion in tax breaks from the U.S. Treasury in the last three years.

Pepco Holdings had the lowest effective tax rate of all the companies in the study, at negative 57.6 percent over the three year period.

The study was released at a time when many corporations are lobbying for lower corporate rates and a tax holiday on repatriated foreign profits.

“Our study provides proof that too many corporations are already being coddled by our tax system,” said Citizens for Tax Justice director Robert McIntyre, the report’s lead author.

Some companies within sectors fare worse than others, the study found. For example, the report found that FedEx paid a 0.9 percent tax rate over the three-year period, while its competitor, UPS, paid a 24.1 percent rate.

While retailers and wholesalers in the study generally pay average effective tax rates of about 30 percent, online commerce giant Amazon.com paid a rate of only 7.9 percent on its $1.8 billion in profits from 2008 to 2010.

Financial services companies received the largest share (16.8 percent) of all federal tax subsidies over the last three years. More than half of the federal corporate tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas and pipelines.

The top 10 defense contractors saw their combined tax rate decline from 19.3 percent in 2008 to a mere 10.6 percent rate in 2010.

U.S. corporations with significant (10 percent or more of their total worldwide profits) foreign profits paid tax rates to foreign countries that were almost a third higher than the taxes they paid to the IRS on their domestic profits.

Most of the corporations do not release their tax returns. Instead the study relied on the annual reports and 10-K forms filed by the corporations with the Securities and Exchange Commission, which often include information on the tax liabilities and benefits claimed on their financial statements. These can differ from the actual tax returns they file with the IRS, however, and many of the companies pay other types of taxes, such as state and payroll taxes. For details, visit 30 Fortune 500 Corporations Paid Less than 0 in Federal Income Taxes, on the Accounting Today website, www.accountingtoday.com.

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