GUILTY UNTIL PROVEN INNOCENT

With the IRS you are guilty until you prove yourself innocent. The following case is a good example of this. The taxpayer could not prove that two deposits were not income and so therefore the IRS and the court determined that they were income. Don’t forget… “documentation, documentation documentation.”

The IRS assessed additional taxes based on two bank deposits made to the taxpayer’s business account. The taxpayer claimed that the deposits were either proceeds of insurance, borrowed funds or transfers from a savings account, but did not specify the source of the two checks. The taxpayer provided no evidence to support any of these theories as to the source of the funds. The court held that the IRS determination that the deposits were income was not refuted; therefore, the deposits were taxable income. An accuracy penalty was assessed and approved because the taxpayer failed to provide any reasonable cause for the failure to include the amounts in income. Wright v. Comm’r, T.C. Summary Op. 2010-50.

FIGURES FROM THE IRS

In 2008 alone, 447 House employees and 231 Senate workers didn’t pay their taxes, according to figures from the IRS, Office of Personnel Management, and Department of Defense. Federal employees in the U.S. House of Representatives owed more than $5.8 million in unpaid taxes in 2008. The Senate employees owe more than $2.46 million, according to figures.

HEALTH CARE ACT AND CHILDREN UNDER AGE 27

As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010. These changes immediately allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.

Employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010.

MOVING – HERE IS HOW YOU LET THE IRS KNOW

The IRS has issued updated procedures for determining a taxpayer’s “last known address” which is used for all IRS communications with taxpayers, including refunds. In general, taxpayers are encouraged to submit change of address, Form 8822.

IMPORTANT INFORMATION REGARDING CREDIT CARDS

If you take credit cards...you know the importance of protecting your customers' personal credit card data. But did you know it's your responsibility to make sure your business is PCI (Payment Card Industry) Compliant by July 2010? Check out this link to read more about PCI: What Is PCI?

We will be attending some upcoming classes on this very subject; keep an eye on our blog for more details.

Amanda Haumont, Marketing Specialist

MORE ON THE HOMEBUYER CREDIT

Here is a good chart on the homebuyer and energy credit:
Homebuyers Tax Credit Guide