New cost basis reporting rules now apply, for the first time ever, to Form 1099-B sent to investors and the IRS. But other onerous reporting rules for businesses and landlords scheduled to take effect in 2012 have been repealed.

Are you confused? You’re not alone. Here’s a brief recap on what is and isn’t taking place this year.

Reporting for investments: Previously, financial institutions were required to report on Form 1099-B certain information relating to the sale of investments, such as the date of the sale and the amount of the sale proceeds. It was the investor’s responsibility, however, to provide the acquisition date and the purchase price on Schedule D, although many brokers often provided additional information when it was available.

Many clients will panic about the new rules taking effect and about rules that were supposed to take effect this year and won’t. Be a calming influence and explain the implications to your clients.
This meant that investors – and their tax return preparers – had to figure out the cost basis of investments for tax purposes before the information was transferred to Schedule D. Typically, an investor had some flexibility in choosing a method for establishing the basis of securities that were sold if he or she had acquired multiple shares of the same security at different times and prices. In essence, the investor could choose to identify the shares being sold as the ones that provided the optimal tax result. Thus, an investor could effectively decrease a taxable gain or increase a loss.

But now the rules have changed. Under the Emergency Economic Stabilization Act of 2008, financial institutions must report on Form 1009-B the relevant cost basis information, but only for “covered securities” phased in over a three-year period. The new cost basis reporting rules apply to:
Stocks (both domestic and foreign), American Depository Receipts (ADRs), real estate investment trusts (REITs), and exchange-traded funds (ETFs) taxed as corporations acquired on or after January 1, 2011.
Mutual funds, dividend reinvestment plans (DRPs), and other ETFs acquired on or after January 1, 2012.
All other remaining securities – such as options, fixed income instruments, and debt instruments – acquired on or after January 1, 2013.
Therefore, cost basis information must be reported on Form 1099-B for stocks acquired after 2010, but not for mutual fund shares acquired before 2012. The new rules for mutual fund shares acquired after 2011 will be reflected on 1099-B forms sent to investors next year.

If an investor doesn’t select a cost basis method indentifying the shares of covered securities at the time of the transaction, the institution will use a default method. The default method for stocks acquired after 2010 is the first-in, first-out (FIFO) method. For mutual funds shares acquired after 2012, the broker may choose to use the FIFO method or an “average cost” method as a default.

Reporting for businesses and landlords: Traditionally, businesses have reported on Form 1040 payments compensating parties for services rendered if the annual total received by the provider is $600 or more. This reporting requirement also applies to commissions, rents, royalties, interest and the like.

However, these reporting rules don’t extend to payments for goods. Furthermore, a business generally doesn’t have to report payments made to corporations.

Under the Affordable Care Act of 2010 (ACA) – the controversial health care legislation – a business was required to provide 1099s for payments to corporations, beginning in 2012. The health care law also imposed these extended reporting rules on payments for goods.

These onerous requirements faced strong opposition from the business sector and the tax community. Ultimately, the extended requirements were repealed by the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011. So there are new no reporting requirements for businesses in 2012. It’s as if this provision of the health care law never existed.

Similar rules would have increased reporting responsibilities for landlords. Under the Small Business Jobs Creation Act of 2010, new reporting rules were imposed for payments for services in conjunction with rental properties, beginning in 2011. Subsequently, the ACA extended the reporting rules to payments to corporations and to payments for goods. These changes were scheduled to take effect in 2012. As with the provision applicable to businesses, the 2011 law repealed the new reporting requirements for landlords.

Calm the waters: Undoubtedly, many clients will panic about the new rules taking effect – and those that were supposed to take effect and won’t – this year. You can be a calming influence.
Set the record straight and explain the implications to your clients.

Full Article: http://www.accountingweb.com/topic/tax/ins-and-outs-new-reporting-rules-2012

For the first time in almost a year, more Americans are saying the economy is better (28 percent) than those who say it’s getting worse (23 percent), according to a CBS News/New York Times poll of 1,154 adults. Since October, the percentage of Americans who say the economy is getting better has increased 14 percentage points. Poll analysts say the increase in optimism may be related to the drop in the unemployment rate, combined with recent positive economic news. For example, jobless claims dropped, inflation has been trending lower, and global stocks have been gaining ground over the last few weeks.

Before this poll, the last time Americans had a net positive outlook on the economy was last February. They’re not exactly upbeat as a whole, however. Four out of five American say the economy is bad.

CEOs aren’t too pleased either. According to a new annual survey by PricewaterhouseCoopers, nearly half of 1,258 CEOs polled think the global economy will sink in the next year. Only 15 percent think it will improve.

The poll shows that while the global economy as a whole may not be inspiring confidence, CEOs are saying their own businesses should grow. In fact, CEOs are nearly three times more confident in their own company’s growth prospects than they are in the growth of the global economy.

“The optimism that had been building cautiously since 2008 has begun to recede,” said Dennis Nally, Chairman of PwC International Ltd., in a statement. “The ongoing debt crisis in the European Union, along with other lingering economic uncertainties, has deflated confidence in business growth around the world.” The biggest decline in confidence was in Western Europe. In the United States, CEOs are showing “measured optimism,” the survey says, with 60 percent planning to hire this year.

Full Article: http://www.accountingweb.com/topic/cfo/economy-americans-feeling-better-ceos-feeling-gloomy

A few select provisions in the Patient Protection and Affordable Care Act of 2010 – the Affordable Care Act (ACA) for short – have already taken effect; however, the most controversial sections of the new law are not scheduled to kick in until 2014. According to a new report released by the Treasury Inspector General for Tax Administration (TIGTA) on January 5, 2012, the IRS Appeals Office is gearing up for the anticipated onslaught.

The TIGTA report indicates that the new law’s impact on appeals should be minimal for the next two years, but it expects the floodgates to open in 2014. The IRS Appeals Office has made some initial preparations, including reassigning some of its staff to the IRS ACA division, as well as creating an internal website with links to ACA-related IRS training, guidance, and other resources.

“Because of the potential for the ACA to affect most taxpayers, effective planning is critical to ensuring Appeals’ readiness to prepare for this legislation and resolve taxpayer requests in a timely and effective manner,” said J. Russell George, Treasury Inspector General for Tax Administration, in a press release.

The latest TIGTA report follows up on a mostly positive audit conducted last year. In that audit, TIGTA determined that the IRS appears to be on track in meeting the new technological challenges it can expect to face as a result of the health care legislation.

Under several key provisions in the new law, individuals who are not eligible for Medicare or Medicaid must obtain minimum health coverage, while businesses are generally required to offer minimum coverage to their employees. The IRS bears the burden of collecting penalties from taxpayers and business entities that fail to live up to their responsibilities. In addition, health insurance coverage will become available through exchanges operated by the individual states.

Currently, a qualified small business can claim tax credits for providing health insurance coverage to its employees. For 2014 and thereafter, an employer may benefit from tax credits offsetting part of the cost of offering coverage through one of the state-run exchanges.

The IRS expects to face numerous appeals on these issues as both individuals and employers grapple with the new ACA rules. In the meantime, what can you do? Tax professionals are advised to educate themselves well in advance of 2014 in order to be responsive to their clients’ needs.

Full Article: http://www.accountingweb.com/topic/fitness/irs-gears-health-care-law-appeals

According to entertainment outlet TMZ, the IRS just filed a lien against Lohan for $93,701.57 because she never paid her income taxes for 2009. If Lohan fails to clean up this latest mess, the IRS could go after her worldly possessions – including bank accounts, real estate, and any other personal property – in its efforts to collect the debt.

Lohan has been in the news recently for all the wrong reasons. She pleaded guilty last May to stealing a $2,500 necklace from a Venice, California, jewelry store at a time when she was already on probation stemming from two drunk driving convictions in 2007. As per a judge’s order, Lohan is currently performing community service and attending therapy sessions after violating her probation. Prosecutors said that she missed twelve of twenty scheduled community service days, and cancelled fourteen of nineteen of her therapy appointments.

In addition, a member of the paparazzi is now suing Lohan, alleging that he was severely injured in 2010 when the vehicle she was riding in crashed into his car. The vehicle was being driven by Lohan’s assistant.

Ironically, the tax lien dates back to 2009, a year in which Lohan’s only cinema work was her appearance in Labor Pains. The movie, which was originally intended for theatrical release, went straight to TV, although it did run in theaters in a few foreign countries.

A representative for Lohan told TMZ that she was completely unaware of the tax problem, but she expects to resolve it quickly. The IRS hasn’t issued any official comment on the matter.

At least there’s some good news for Lohan: Thanks to posing in a popular men’s magazine for the January/February 2012 issue, she recently received a payday of close to $1 million. The cash might be used to pay off her tax debt. She is also in talks to portray Elizabeth Taylor in a new movie.

Full Article: http://www.accountingweb.com/topic/bad-guys-news/irs-being-mean-lindsay-lohan

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.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Time is running out before the payroll tax rate automatically increases in two weeks, and the dispute over how to fund it continues.

The tax measure at issue would maintain the payroll tax rate at 4.2 percent for the year 2012 instead of allowing it to revert to 6.2 percent January 1. It’s a tax cut worth about $1,000 to families earning $50,000 a year. The payroll tax bill also would renew benefits for the long-term unemployed and prevent a cut in Medicare benefits for seniors.

This morning (December 19), the Associated Press reported that “Boehner spoke after a chaotic weekend in which Senate leaders first failed to agree on a full-year bill, then coalesced around the two-month extension that passed overwhelmingly, only to spark a revolt among GOP conservatives in the House.”

Here’s a summary of what’s been happening:

While the GOP-led House passed a bill on December 14 extending the tax cut, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees. In addition, it raised Medicare premiums for seniors, and it raised a fee that’s charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac. The bill didn’t have the votes to pass the Senate.

On Friday, December 16, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement requires the administration to decide within 60 days if the controversial 1,700-mile Keystone XL pipeline is in the nation’s best interests. Some environmental groups oppose the project, but several unions support it.

Senate Republican Leader, Mitch McConnell, said Keystone XL would create about 20,000 jobs. Critics say the figure would be fewer than 3,500, including fewer than 1,000 that would be permanent.

House Speaker, John Boehner, said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.

Obama would prefer to postpone the controversial matter, and he threatened to veto any bill that forces a decision. Because the project crosses international borders, it requires White House approval. The administration complained that House Republicans are injecting “ideological issues into what should be a simple debate about cutting taxes for the middle class.”

Original Article: http://www.accountingweb.com/topic/tax/wrangling-continues-over-payroll-tax-cut

IR-2011-116, Dec. 9, 2011

WASHINGTON — The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

“Whether people shop online or in stores, states expect them to pay sales tax on their purchases,” said Daniel Schibley, JD, CCH senior state tax analyst. “However, few online shoppers comply, unless the tax is collected by the merchant.”

Under existing laws, retailers are required to collect sales taxes for purchases made in states in which they have a physical presence, or nexus. As more sales head online, it is projected that states are losing billions of dollars annually in sales tax revenue they once collected from local retailers, and they are increasingly looking for ways to shore up their tax base.

Two ways to do this, according to CCH, are to require more online retailers to collect sales tax through broader nexus rules and to require consumers to pay the required use tax portion of sales tax. Sales tax has two parts – the sales portion paid by the retailer and the use portion paid by the consumer. Under existing rules, individuals are required to pay use tax in states with a sales tax if the retailer does not collect the tax.

State Sales Tax Collection Approaches

Overall, 45 states currently have a sales tax. This includes every state with the exception of Alaska, Delaware, Montana, New Hampshire and Oregon. The District of Columbia also imposes a sales tax.

Several states also are more aggressively enacting rules to help ensure more retailers and consumers pay sales tax, as outlined below. For a chart of state sales tax activities, click here.

Eleven states have enacted broader nexus rules that require online retailers to collect sales and use tax even if the retailer does not have a physical presence in the state but does solicit sales through online links or pays commissions to an in-state business (known as click-through nexus); or if the retailer has an affiliation with a company doing business in the state (known as affiliate-nexus laws). These states include: Arkansas, California, Colorado, Connecticut, Illinois, New York, North Carolina, Rhode Island, South Dakota, Texas and Vermont. The California, Texas and Vermont provisions are not yet in force, however. Four other states have legislation for these rules pending: Massachusetts, Michigan, Pennsylvania and Tennessee.

“Each of these laws increase the likelihood that if you live in these states, some online retailers will be charging you sales taxes when you make online purchases,” said Schibley.

Additionally, Colorado law requires retailers selling into the state but not collecting sales tax to send the state an annual reporting notification statement of everyone in the state it shipped to and the value of those purchases so that it can pursue collection of use taxes. However, a federal court in Denver has put enforcement of this law on hold for now.

Several states also require online retailers to provide explicit notifications on their websites letting consumers know about their obligation to pay their state sales tax. States with these website notification rules include Colorado, Oklahoma, South Dakota and Vermont.

States collecting sales tax also have information on their websites about how to pay uncollected use tax. Many states provide a line item on their income tax return where consumers can report the amount of use tax they owe.

Full version at at AccountingWeb.com - Sales Tax on Online Purchases Is On the Rise

Just a week after this year’s Veterans Day, President Obama signed new legislation providing a tax credit to employers who hire military veterans. The VOW to Hire Heroes Act is a small piece of a much larger jobs bill that has stalled in Congress.

According to White House data, approximately 240,000 veterans of the wars in Iraq and Afghanistan remain unemployed, while a total of 850,000 veterans overall are out of work. To compound the problem, the Obama administration reports that 1 million other service members are expected to return to civilian life by 2016. “No veteran who fought for our nation should have to fight for a job when they come home,” said the president.

The new law allows a company to claim a tax credit of up to $2,400 if it hires veterans who have been looking for work for at least one month. The maximum credit is increased to $5,600 for hiring veterans who have been searching for work at least six months. And employers may be granted a $9,600 tax credit for hiring out-of-work veterans with service-related disabilities. The new legislation also provides job training to help returning vets return to work.

Under prior law, qualified veterans are included as one of the target groups eligible for the Work Opportunity Tax Credit (WOTC). The WOTC is currently scheduled to expire after December 31, 2011.

A Department of Defense official said that the agency will expand its programs to help returning veterans.”Combat is incredibly tough business, and we are finding that the human toll on a 10-year veteran, the physical and mental toll, it is incredible,” said Philip Burdette, principal director of the Office of Wounded Warrior Care and Transition Policy. “As we end the war in Iraq and wind down in Afghanistan, we are absolutely planning for returning service members.”

Finally, in a separate provision, the new legislation repeals the three percent withholding requirement for payments made by federal, state, and local governments to contractors for goods and services. The withholding requirement, which was established by a 2006 law, was scheduled to take effect in 2013.

Full Version at AccountingWeb.com – Congress Salutes Veterans with New Hiring Tax Credits