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IRA Tax Problem? What options you have

March 20, 2008 | Mike Habib, EA

“Makeup” required minimum distributions salvage lifetime payouts to nonspouse IRA beneficiary

Mike Habib, EA
myIRSTaxRelief.com

A private letter ruling allows the nonspouse beneficiary of an IRA to salvage lifetime payouts even though she failed an essential rule requiring distributions to begin by the end of the year following the year of the IRA owner’s death. She made up missed annual required minimum distributions (RMDs) and paid a penalty excise tax, but by doing so she avoided a tough 5-year payout rule.

Background. If an IRA owner dies before his required beginning date (RBD), namely Apr. 1 of the year following the year in which age 70 1/2; is attained, then as a general rule his entire interest must be distributed within 5 years of his death. (Code Sec. 401(a)(9)(B)(ii)) However, if any part of the IRA is (1) payable to (or for the benefit of) a designated beneficiary, (2) that part is to be distributed under regs over the life or life expectancy of the designated beneficiary, and (3) the distributions begin not later than 1 year after the date of the deceased’s death (or a later date as prescribed by regs), then that part is treated, for Code Sec. 401(a)(9)(B)(ii) purposes, as paid out when distributions commence. (Code Sec. 401(a)(9)(B)(iii))

Reg. § 1.401(a)(9)-3, Q&A 3(a), says that where there’s a nonspouse beneficiary for the IRA (or a qualified plan account), in order to satisfy the life expectancy payout rule in Code Sec. 401(a)(9)(B)(iii), “distributions must commence on or before the end of the calendar year immediately following the calendar year in which the [IRA owner or employee] died.”

The determination of whether the five-year or lifetime payout rule applies depends on the provisions of the IRA. It may be silent as to which rule (5-year or lifetime payout) applies, specify which rule applies, or it may allow the owner (or beneficiary) to elect which rule applies. (Reg. § 1.401(a)(9)-3, Q&A 4)

Poker Tournament Winnings Must be Reported to the IRS

March 8, 2008 | Mike Habib, EA

Starting March 2008, casinos and other sponsors of poker tournaments will be required to report most winnings to winners and the Internal Revenue Service, according to the IRS.

Mike Habib, EA
myIRSTaxRelief.com

The new requirement, which went into effect on March 4, 2008, was contained in guidance released Sept. 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax reporting rules that apply to poker tournaments. In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.

Payroll tax levy Employment tax levies Payroll Tax Problem

February 29, 2008 | Mike Habib, EA

IRS provides guidance on new rules for employment tax levies

Mike Habib, EA

The IRS has issued interim guidance to its directors and collection area offices that explains when it is permissible to issue a levy to collect employment taxes without first giving the taxpayer a pre-levy collection due process (CDP) notice.

How to reconstruct tax records after a disaster

February 27, 2008 | Mike Habib, EA

Reconstructing Your Records

Mike Habib, EA

Reconstructing records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. Records that you need to prove your loss may have been damaged or destroyed in a casualty. While it may not be easy, reconstructing your records may be essential for:

Is an IRS Offer In Compromise right for you? Know your options!

February 27, 2008 | Mike Habib, EA

Direct from the IRS

Mike Habib, EA

Is an Offer in Compromise Right for You?

IRS SFR Substitute For Return Unfiled Tax Returns Back Taxes Owed

February 13, 2008 | Mike Habib, EA

Final substitute return regs adopt temporary and proposed regs with one minor change
T.D. 9380, 2/12/2008; Reg. § 301.6020-1

Mike Habib, EA

In 2005, IRS issued temporary (also issued as proposed regs) that broadened the scope of when IRS-prepared substitute returns (SFR) are valid. Specifically, the temporary regs provide that a document or set of documents (including a Form 13496, Code Sec. 6020(b) Certification) signed by an authorized IRS officer or employee is a “return” under Code Sec. 6020(b) if it identifies the taxpayer by name and taxpayer identification number, contains sufficient information to compute his tax liability, and purports to be a return. IRS has now adopted the temporary and proposed regs as final regs with one minor change.

Tax Court found that it could hear challenge to frivolous return penalty before rejecting summary judgment in favor of IRS

February 8, 2008 | Mike Habib, EA

IRS tax problem, IRS penalty, IRS Tax court ruling in favor of taxpayer

Tax Court found that it could hear challenge to frivolous return penalty before rejecting summary judgment in favor of IRS

Callahan (2008), 130 TC No. 3

Foreign nationals, non US citizens with IRS filings, dealing, or tax problems facing non US citizens and foreign national

February 8, 2008 | Mike Habib, EA

Changes made to Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding)

Mike Habib, EA

The IRS has made some changes to the electronic/magnetic media filing procedures for 2007 Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, and also released the 2008 version of the form. Form 1042-S is filed by withholding agents to report amounts paid to foreign persons (including persons presumed to be foreign) that are subject to U.S. withholding, even if: (1) no amount is deducted and withheld from the payment because of a treaty or Internal Revenue Code exception to taxation, or (2) the amount withheld was repaid to the payee. Amounts subject to reporting include, but are not limited to, the following U.S.-source items: (i) compensation for independent or dependent personal services performed in the U.S., (ii) compensation for personal services performed in the U.S. by students, teachers, and researchers, and (iii) amounts paid to foreign students, trainees, teachers, or researchers as scholarship or fellowship income, except that amounts exempt under IRC §117 are not subject to reporting. An item that is required to be reported on Forms W-2 or 1099 should not be reported on Form 1042-S.

Capital gain treatment for self-created musical work

February 8, 2008 | Mike Habib, EA

Music composer tax related capital gain treatment

IRS Temp reg describes how and when to elect capital gain treatment for self-created musical works

T.D. 9379, 02/07/2008, Reg. § 1.1221-3T; Preamble to Prop Reg 02/07/2008, Prop Reg § 1.1221-3

The IRS has a check for you!

January 17, 2008 | Mike Habib, EA

What’s New: IRS has $110 million in undeliverable refunds

Are you still waiting for your tax refund? If so, you may be one of the 115,478 taxpayers to whom the IRS has been unable to deliver a refund check. The refunds total about $110 million.

Every year there are taxpayers who don’t update the IRS or the U.S. Postal Service when they move or change their mailing address. Checks are mailed to the last known address for taxpayers, and when the address isn’t current, the checks are returned as undeliverable.