tax settlement

The Internal Revenue Service today outlined ways informants can report violations of the tax law and possibly claim a reward based on the amount of additional tax, penalties and interest that is owed.“Since Congress enacted new procedures increasing award amounts last year, informants have come forward with information on alleged tax noncompliance amounting to tens of millions of dollars, and in some cases hundreds of millions of dollars,” said Stephen Whitlock, Director of the Whistleblower Office.

Since the Whistleblower Office was created in December 2006, the IRS has received about 80 claims, half of those submitted in just the last two and a half months. To make a claim, an informant must file new Form 211, Application for Award for Original Information, which asks informants to provide an estimate of the tax owed, the pertinent facts in the case and an explanation of how the informant obtained the information.

The IRS’ Whistleblower Office will make the final determination about whether an award will be paid and the amount of the award for claims that it processes. Awards will be paid in proportion to the value of information furnished voluntarily with respect to proceeds collected.

Under the new procedures, the amount of award will be at least 15%, but no more than 30%, of the collected proceeds in cases in which the IRS determines that the information submitted by the informant substantially contributed to the collection of tax.  The award percentage may be reduced in some circumstances, which are described in IRS guidance.

To be eligible for an award under the new procedures, the tax, penalties, interest, additions to tax, and additional amounts in dispute must exceed $2 million for any taxable year and, if the taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year in question.

All awards will be subject to normal tax reporting and withholding requirements.

Related Items:

• Notice 2008-4
• Form 211

The Internal Revenue Service announced it will immediately begin the final reprogramming steps for its income-tax processing systems to prepare for the upcoming tax season following final passage of the Alternative Minimum Tax “patch” Wednesday by the House.“Our people will do everything they can to quickly update our systems for this major change and make this filing season as smooth as possible for everyone,” said Linda Stiff, IRS Acting Commissioner. “Our goal is to process tax returns accurately and to issue refunds to taxpayers as quickly as possible.”

The AMT and AMT-related tax calculations affect a number of core IRS processing systems that will need to be updated. The IRS is continuing to aggressively explore options for the 2008 filing season in order to minimize the impact of processing delays on taxpayers. Additional details will be available to the public as soon as plans are finalized.

To help the tax professional and software communities prepare for the upcoming filing season, revised copies of the 12 tax forms impacted by the AMT legislation will be posted to IRS.gov within 72 hours after the AMT patch is signed into law.

As more details on the AMT situation develop, the IRS encourages taxpayers to visit IRS.gov for more information.

The Internal Revenue Service has developed a new form for employees who have been misclassified as independent contractors by an employer. Form 8919, Uncollected Social Security and Medicare Tax on Wages, will now be used to figure and report the employee’s share of uncollected social security and Medicare taxes due on their compensation.Generally, a worker who receives a Form 1099 for services provided as an independent contractor must report the income on Schedule C and pay self-employment tax on the net profit, using Schedule SE. However, sometimes the worker is incorrectly treated as an independent contractor when they are actually an employee. When this happens, Form 8919  will be used beginning for tax year 2007 by workers who performed services for an employer but the employer did not withhold the worker’s share of social security and Medicare taxes.

In addition, the worker must meet one of several criteria indicating they were an employee while performing the services.  The criteria include:

• The worker has filed Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating they are an employee of the firm.
• The worker has been designated as a section 530 employee by their employer or by the IRS prior to January 1, 1997.
• The worker has received other correspondence from the IRS that states they are an employee.
• The worker was previously treated as an employee by the firm and they are performing services in a similar capacity and under similar direction and control.
• The worker’s co-workers are performing similar services under similar direction and control and are treated as employees.
• The worker’s co-workers are performing similar services under similar direction and control and filed Form SS-8 for the firm and received a determination that they were employees.
• The worker has filed Form SS-8 with the IRS and has not yet received a reply.

By using Form 8919, the worker’s social security and Medicare taxes will be credited to their social security record. To facilitate this process, the IRS will electronically share Form 8919 data with the Social Security Administration.

In the past, misclassified workers often used Form 4137 to report their share of social security and Medicare taxes. Misclassified workers should no longer use this form. Instead, Form 4137 should now only be used by tipped employees to report social security and Medicare taxes on allocated tips and tips not reported to their employers.

The Internal Revenue Service issued an updated version of Form 990, the return that charities and other tax-exempt organizations are required to file annually, and provided transition relief so that small exempt organizations will have time to adjust to the new form.“When we released the redesigned draft form this past June, we said we needed a Form 990 that reflects the way this growing sector operates in the 21st century,” said Steven T. Miller, Commissioner of the IRS’ Tax Exempt and Government Entities division.  “The public comments we received in response to our draft form helped us develop a final form consistent with our guiding principles of transparency, compliance and burden minimization.”

The final form released today retains the redesigned draft’s format of a core form and a series of schedules.  In response to public comments, the new core form allows an organization to describe its exempt accomplishments and mission up-front and provides more opportunities throughout the form for the organization to explain its activities.  Other major changes were made to the form’s summary page, governance section, and various schedules, including those relating to executive compensation, related organizations, foreign activities, hospitals, non-cash contributions and tax exempt bonds.  A checklist of schedules was also added.

“We could not have done this without the tremendous input of the tax-exempt sector, the practitioner groups and the states,” said Lois G. Lerner, Director of Exempt Organizations.  “The almost 700 public comment letters, the advice and counsel of numerous nonprofit experts and state regulators, and the input from the nonprofit sector’s leaders, were invaluable as we moved from the June discussion draft to the final form we released today.”

The new form will be used for the 2008 tax year (returns filed in 2009). The IRS plans to release the related instructions in early 2008.  “We are continuing to work with the nonprofit sector to complete the new form’s instructions,” said Lerner.

The IRS also announced a graduated transition period for smaller organizations.  These organizations will be allowed to file the Form 990-EZ instead of the Form 990.  For the 2008 tax year (returns filed in 2009), organizations with gross receipts over $1.0 million or total assets over $2.5 million will be required to file the Form 990.  For the 2009 tax year (returns filed in 2010), organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file the Form 990.   The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year.  Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

“This phase-in process will allow organizations to become familiar with the new Form 990,” Lerner said.

The IRS also announced a phase-in of the form’s new hospital and tax exempt bond schedules.  Certain identifying information will be required for the 2008 tax year, with completion of the entire schedules required for the 2009 tax year.  In response to the nonprofit sector’s safety and security concerns regarding disclosure of certain foreign workers and volunteers, the IRS revised the form to permit reporting of foreign activities by region, rather than by country, until other safeguards may be implemented to protect the privacy interests of such persons.

“We believe the transition relief we are providing is appropriate and meaningful, and will ease the concerns raised by commenters,” said Lerner.

The final Form 990 and background material explaining the changes from the current form and the June draft are available on the Exempt Organizations portion of the IRS Web site, IRS.gov/eo.

Link: Form 990 Redesign for Tax Year 2008