If the taxpayer is unable to secure and provide a correct Form W-2, W-2G, or 1099-R, the return may be electronically filed after Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. is completed in accordance with the use of that form. This is the only time information from Pay stubs or Leave and Earning Statements (LES) is allowed.
The IRS monitors Authorized IRS e-file Providers for compliance with the Revenue Procedure 2007-40 and IRS e-file rules and requirements. Monitoring visits will be conducted to investigate complaints and to ensure compliance.
Violations of IRS e-file requirements may result in warning or sanctioning an Authorized IRS e-file Provider. Sanctioning may be a written reprimand, suspension or expulsion from participation from IRS e-file, or other sanctions, depending on the seriousness of the infraction. The IRS categorizes the seriousness of infractions as Level One, Level Two, and Level Three. Providers may appeal sanctions through the Administrative Review Process. Un-reversed suspensions make Authorized IRS e-file Providers ineligible to participate in IRS e-file for a period of either one or two years from the effective date of the sanction.
References:
• Chapter 3 “Submitting the Electronic Return to the IRS” Publication 1345
• Sanctioning in Publication 3112

Obama said Wednesday they should use a new Twitter hashtag, #My2K, to explain what they would do with the additional $2,200 that a family of four is estimated to pay next year if the current tax rates expire for taxpayers earning less than $250,000 a year.

“Today, I’m asking Congress to listen to the people who sent us here to serve,” he said. “I’m asking Americans all across the country to make your voice heard. Tell members of Congress what a $2,000 tax hike would mean to you. Call your members of Congress, write them an email, post it on their Facebook walls. You can tweet it using the hashtag My2K. Not Y2K. My2K. We figured that would make it a little easier to remember.”
Obama met with a group of small business owners Tuesday to discuss the impending tax hikes and other aspects of the so-called fiscal cliff that threatens to plunge the economy into recession next year unless Democrats and Republicans in Congress can agree on a tax cut extension and budget cuts (see Obama Meets Small Biz Leaders to Discuss Fiscal Cliff).

On Wednesday, Obama plans to sit down with the leaders of major financial firms such as Deloitte LLP CEO Joe Echevarria and Goldman Sachs chairman and CEO Lloyd Blankfein, as well as the chief executives of major corporations such as Yahoo CEO Marissa Meyer, Home Depot chairman and CEO Frank Blake, and Coca-Cola CEO Muhtar Kent.

“I’m sitting down with CEOs; I’m sitting down with labor leaders; I’m talking to leaders in Congress,” said Obama. “I am ready and able and willing and excited to go ahead and get this issue resolved in a bipartisan fashion so that American families, American businesses have some certainty going into next year. And we can do it in a balanced and fair way, but our first job is to make sure that taxes on middle-class families don’t go up. And since we all theoretically agree on that, we should go ahead and get that done. If we get that done, a lot of the other stuff is going to be a lot easier.”

Obama plans to go on a campaign-style trip later this week to Pennsylvania and other parts of the country to promote his tax policy. “Even the wealthiest Americans would still get a tax cut on the first $250,000 of their income,” he pointed out. “So it’s not like folks who make more than $250,000 aren’t getting a tax break, too. They’re getting a tax break on the first $250,000 just like everybody else.”

Speaker of the House John Boehner, R-Ohio, and Republican leaders met Wednesday with former Clinton White House Chief of Staff Erskine Bowles, who co-chaired the Simpson-Bowles deficit reduction commission, and the “Fix the Debt” coalition of business leaders to discuss a balanced framework for averting the fiscal cliff and solving our debt crisis.

“Going over the ‘fiscal cliff’ would hurt our economy and cost jobs, and people in both parties agree we need a ‘balanced approach’ to deal with our debt,” said Boehner in a statement after the meeting. “One thing Republicans won’t be party to is a deal that protects big businesses and preserves special-interest tax breaks while raising tax rates on the small businesses we’re counting on to create jobs. To show we’re serious about reaching a bipartisan agreement, we have offered to accept some new revenues, provided the revenue comes from tax reform and is accompanied by significant spending cuts. Without spending cuts and entitlement reform, it is impossible to address our country’s debt crisis. We put revenue on the table. Now, it’s important for President Obama and congressional Democrats to tell the American people what spending cuts they’re willing to make, and I’m hopeful the ‘Fix the Debt’ coalition will call on them to do so. Republicans are eager to forge a bipartisan agreement that can pass both chambers of Congress. The framework we’ve outlined is the responsible path, and it is consistent with the ‘balanced’ approach the White House says it wants.”

BY ALISTAIR M. NEVIUS, J.D.
NOVEMBER 2012
You can’t pick up a newspaper or go online this fall without seeing stories about the coming “tax cliff” or “taxmageddon”—the time at the end of this year when the current tax rates for income, capital gains, gifts, and estates are scheduled to expire. Mostly overlooked by the news media are a large number of other tax provisions that are also scheduled to expire or have already expired.
The country faced a similar situation at the end of 2010, when, after having had nine years to prepare for the sunset of the lower income, estate, and gift tax rates enacted in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), P.L. 107-16, and seven years to prepare for the sunset of the lower capital gains tax rates enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), P.L. 108-27, Congress had to scramble to prevent the rates from rising. The House and the Senate finally enacted a short-term solution in mid-December 2010 in the form of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act), P.L. 111-312, which extended the ordinary income tax rates and the capital gains tax rates, reinstated the estate tax at a reduced rate, and extended a large number of expired or expiring provisions.
This year the country faces the same prospect. Many of the 2010 Tax Relief Act extensions expired at the end of 2011, and the rest expire at the end of this year. This article details what has expired and will expire if Congress does not act.
What Congress’s solution will look like was still hard to gauge as this article went to press, and it will depend to a large extent on the results of this month’s presidential and congressional elections, which could affect tax law for years to come. And while the major parties have expressed strong positions on which income tax brackets should or should not be extended and for whom, they have largely been quiet on issues such as the estate and gift tax rates and the various other expiring tax provisions.
In August, the Senate Finance Committee approved a bill, the Family and Business Tax Cut Certainty Act of 2012, that would extend some, but not all, of the expired provisions through 2013. This may signal that, when Congress does act, it will not extend every expired provision because of the cost in lost federal revenue. Tax provisions for individuals that the bill focused on included restoring the alternative minimum tax (AMT) patch, the deduction for state and local sales tax, and parity for employer-provided mass transit and parking benefits. Provisions for businesses included extending the research and development credit, the work opportunity credit, and the increased Sec. 179 expensing amounts. In all, the bill would extend or restore 11 provisions for individuals, 28 for businesses, and 13 energy incentives. It did not address the impending changes to income, estate, and capital gains tax rates.
The Joint Committee on Taxation estimated that renewing even this smaller list of provisions would cost more than $192 billion in lost revenue from fiscal year 2013 through fiscal year 2017 (Joint Committee on Taxation Rep’t No. JCX-70-12 (Aug. 2, 2012)). The fate of this bill is hard to predict.
PROVISIONS SET TO EXPIRE AT THE END OF 2012
Tax rates. EGTRRA introduced a new 10% tax bracket below the 15% bracket for individuals and reduced the other tax brackets to 25%, 28%, 33%, and 35%. Those changes are scheduled to sunset after 2012 so that in 2013 the 10% rate will disappear (with income in that bracket reverting to the 15% bracket) and the other rates will revert to 28%, 31%, 36%, and 39.6%, respectively.
In 2003, JGTRRA also lowered the capital gains tax rate to 15% (0% for taxpayers in the 10% and 15% income tax brackets). These rate changes are also scheduled to expire after 2012. The rates will revert to 10% for taxpayers in the 15% income tax bracket and 20% for other brackets (8% or 18% for property held more than five years (but to qualify for the 18% rate, the holding period must begin after Dec. 31, 2000)). The taxation of qualified dividend income at capital gains rates will also expire at the end of 2012.
EGTRRA’s repeal of the itemized deduction phaseout (Sec. 68(g)) and the personal exemption phaseout (Sec. 151(d)(3)) is also scheduled to expire after 2012.
Payroll tax reduction. The lower 4.2% rate for employees’ portion of the Social Security payroll tax will expire at the end of 2012 and revert to 6.2%.
AMT provisions. The 0% and 15% capital gains rates for the AMT, the AMT offset of the child tax credit, and the 7% AMT preference for excluded gain on the disposition of qualified small business stock are scheduled to expire at the end of 2012.
Bonus depreciation and Sec. 179 expensing. The 2010 Tax Relief Act sets the expensing limitation under Sec. 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. For tax years beginning after 2012, these amounts reduce to $25,000 and $200,000, respectively.
The availability of an additional 50% first-year bonus depreciation (Sec. 168(k)) expires at the end of 2012. The election to accelerate AMT credits in lieu of bonus depreciation (Sec. 168(k)(4)) also expires at the end of 2012.
Estate, gift, and GST tax. The 2010 Tax Relief Act reinstated the estate, gift, and generation-skipping transfer (GST) tax at a rate of 35% and an estate, gift, and GST tax exemption of $5 million ($5.12 million in 2012, adjusted for inflation). In addition to the increase in the exemption amount, for decedents dying after 2010, the estate tax exemption of the first spouse to die is “portable.” That is, if an election is made, the surviving spouse’s exemption amount is increased by the deceased spouse’s unused exemption amount.
After 2012, if Congress does not act, the estate, gift, and GST tax regime that existed in 2000 will return. The exemption amount will be $1 million, and the top rate will be 55%.
OTHER EXPIRING PROVISIONS
A variety of other temporary tax provisions are scheduled to expire at the end of 2012. These include tax credits, deductions, and various tax incentives.
Individual provisions:
• Marriage penalty relief (i.e., the increased size of the 15% rate bracket (Sec. 1(f)(8)) and increased standard deduction for married taxpayers filing jointly (Sec. 63(c)(2)));
• The liberalized child and dependent care credit rules (allowing the credit to be calculated based on up to $3,000 of expenses for one dependent or up to $6,000 for more than one) (Sec. 21);
• The $1,000 child tax credit amount (scheduled to revert to $500) and the expanded refundability of the credit (Sec. 24);
• The American opportunity tax credit (Sec. 25A);
• The increased starting and ending points for the earned income tax credit and the increase in the credit amount for families with three or more qualifying children (Sec. 32);
• Refundability of the credit for prior-year minimum tax liability (Sec. 53(e));
• Exclusion from gross income for discharge of indebtedness on a principal residence (Sec. 108(a)(1)(E));
• The exclusion for National Health Services Corps and Armed Forces Health Professions Scholarships (Sec. 117(c)(2));
• The exclusion for employer-provided educational assistance (Sec. 127);
• The enhanced rules for student loan deductions introduced by EGTRRA (Sec. 221);
• The higher contribution amount and other EGTRRA changes to Coverdell Education Savings Accounts (Sec. 530); and
• The disregard of taxpayers’ refunds in the administration of certain federal programs (Sec. 6409).

General business-related credits. The employer-provided child care credit (Sec. 45F) expires at the end of 2012. The returning heroes and wounded warriors work opportunity tax credits (versions of the expired work opportunity credit for veterans) also expire at the end of 2012.
Foreign provisions. The IRS’s authority under Sec. 1445(e)(1) to apply a 15% withholding tax to gains on the disposition of U.S. real property interests by partnerships, trusts, or estates that are passed through to partners or beneficiaries that are foreign persons expires at the end of 2012.
Other miscellaneous expiring provisions:
• The cellulosic biofuel producer credit (Sec. 40(b)(6)(H));
• The wind facilities electricity production facility credit (placed-in-service date) (Sec. 45(d));
• Indian coal production credit (Sec. 45(e));
• Election for wind facilities to claim energy credit in lieu of electricity production credit (Sec. 48(a)(5));
• Special treatment of tax-exempt bonds for education facilities (Sec 142(a)(13));
• Special depreciation for cellulosic biofuel plant property (Sec. 168(l));
• Repeal of the collapsible corporation rules (Sec. 341);
• Special rates for accumulated earnings tax and personal holding company tax (Secs. 531 and 541); and
• Modified tax treatment for electing Alaska Native Settlement Trusts (Sec. 646).

EXPIRED PROVISIONS
In addition to the large number of provisions scheduled to expire, many provisions expired at the end of 2011 and have not been reenacted.
PROVISIONS FOR INDIVIDUALS
Increased AMT exemption (Sec. 55(d)). Congress has temporarily increased the AMT exemption amount several times in recent years. These successive increases are commonly referred to as the “AMT patch.” The 2010 Tax Relief Act increased the AMT exemption amounts, but only for 2010 and 2011. With the AMT patch amounts now expired, the AMT exemption has reverted to its statutory amount: $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income (AMTI) exceeding $150,000; and $33,750 for unmarried individuals, less 25% of AMTI exceeding $112,500.
Personal credits allowed against regular tax and AMT (Sec. 26(a)). Starting in 2012, nonrefundable credits generally cannot be used to offset AMT. A few exceptions apply, including the adoption credit (Sec. 23); the child tax credit (Sec. 24); the American opportunity tax credit (Sec. 25A(i)); the retirement savings credit (Sec. 25B); the residential energy-efficient property credit (Sec. 25D); the nondepreciable property portion of the alternative motor vehicle credit (Sec. 30B); and the nondepreciable property portion of the new qualified plug-in electric drive motor vehicle credit (Sec. 30D).
Transit pass parity with parking benefits (Sec. 132(f)). The maximum amount an employee can exclude from income for employer-provided transit passes and transportation in a commuter highway vehicle for 2012 is $125 per month, down from $230 per month in 2011.
Other expired items affecting individuals include:
• The expanded adoption credit (Sec. 23) and adoption-assistance program (Sec. 137) amounts;
• The nonbusiness energy property credit (Sec. 25C);
• The deduction of up to $250 for certain elementary and secondary school teacher expenses (Sec. 62(a)(2)(D));
• Deductibility of mortgage insurance premiums as interest (Sec. 163(h));
• Deductibility of state and local sales tax instead of state income taxes on Schedule A (Sec. 164(b));
• The above-the-line deduction of up to $4,000 for qualified tuition and related expenses (Sec. 222);
• The tax-free treatment of charitable distributions from IRAs (Sec. 408(d)(8));
• The District of Columbia first-time homebuyer credit (Sec. 1400C); and
• The temporary 100% exclusion of gain from the sale of certain small business stock (Sec. 1202(a)).

BUSINESSES
Many business tax incentives expired at the end of 2011. Perhaps the most significant of these are the expiration of the allowance for 100% first-year bonus depreciation (it is reduced to 50% for 2012) (Sec. 168(k)) and the expiration of the increased deduction amounts under Sec. 179. The Sec. 179 expensing limitation was reduced to $125,000 for 2012, and the phaseout threshold amount was lowered to $500,000.
The Sec. 41 research and development credit also expired at the end of 2011, as did the work opportunity tax credit (Sec. 51(c)) (but portions were extended through 2012 for certain veterans by the Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56).
Various other tax credits aimed at businesses also expired:
• The credit for plug-in electric vehicles (Sec. 30);
• The plug-in electric vehicle conversion credit (Sec. 30B(i));
• The alternative fuel (nonhydrogen) vehicle refueling property credit (Sec. 30C);
• The alcohol fuels income tax credit (Secs. 40(e) and (h));
• The biodiesel and renewable diesel fuel credits (Sec. 40A);
• The refined coal production facility credit (placed-in-service date) (Sec. 45(d));
• The Indian employment tax credit (Sec. 45A);
• The new markets tax credit (Sec. 45D);
• The railroad track maintenance credit (Sec. 45G);
• The new energy-efficient homes credit (Sec. 45L);
• The energy-efficient appliances credit (Sec. 45M);
• The mine rescue team training credit (Sec. 45N);
• The military reservist employer wage credit (Sec. 45P);
• The alcohol fuel mixture, biodiesel, alternative fuel, and alternative fuel mixture excise tax credits (Secs. 6426 and 6427); and
• The American Samoa economic development credit (P.L. 109-432).

Expired deductions and special depreciation rules (in addition to the expiration of 100% bonus depreciation) include:
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements (Sec. 168(e)(3)(E));
• Seven-year recovery period for motorsports entertainment complexes (Sec. 168(i)(15));
• Accelerated depreciation for certain Indian reservation property (Sec. 168(j));
Special rules for charitable contributions of real property for conservation purposes (Sec. 170(b));
• Charitable deduction for food inventory contributions (Sec. 170(e)(3)(C));
• Increased charitable deduction for contributions of book inventory to public schools (Sec. 170(e)(3)(D));
• Increased charitable deduction for corporate contributions of computer equipment to schools (Sec. 170(e)(6));
• The election to expense advanced mine safety equipment (Sec. 179E);
• Special film and television production expensing rules (Sec. 181);
• Brownfields environmental remediation expensing (Sec. 198);
• The deduction for domestic production activities in Puerto Rico (Sec. 199(d)(8)); and
• Suspension of 100%-of-net-income limitation on percentage depletion for oil and gas from marginal wells (Sec. 613A(c)).

Finally, a number of other special business incentives and other tax items expired, including:
• Grants in lieu of tax credits for specified energy property (Sec. 48(d));
• Qualified zone academy bonds (Sec. 54E);
• Low-income housing credit special treatment of military housing allowances (Sec. 142(d));
• The special rule for sales or dispositions to implement Federal Energy Regulatory Commission or state electric restructuring policy for qualified electric utilities (Sec. 451);
• Modified tax treatment of certain payments to controlling tax-exempt organizations (Sec. 512(b));
• Special treatment of dividends from regulated investment companies (Secs. 871 and 881);
• Regulated investment company treatment under FIRPTA (Sec. 897(h));
• Subpart F active financing income exceptions (Secs. 953(e) and 954(h));
• Foreign personal holding company lookthrough rules for payments between related controlled foreign corporations (Sec. 954(c));
• Basis adjustments for S corporation charitable contributions of property (Sec. 1367(a));
• Reduced S corporation recognition period for built-in gains tax (Sec. 1374(d));
• Various Empowerment Zone tax incentives (Secs. 1202, 1391, 1394, 1396, 1397A, and 1397B);
• District of Columbia investment incentives (Secs. 1400(f), 1400A, 1400B, and 1400C);
• Definition of gross estate for regulated investment company stock owned by nonresident noncitizens (Sec. 2105(d)); and
• Disclosure of prisoner return information to certain prison officials (Sec. 6103(k)).

STAY TUNED
Whatever Congress ends up doing, many of these tax provisions will affect the upcoming tax season. The IRS will need to program its computers and possibly redesign tax forms. The later in the year legislation is passed, the harder it will be for the IRS to have everything in place. And it is possible that Congress will not resolve things until sometime in 2013, leading to retroactive reinstatement of tax provisions and many amended returns.
Parts of the impending cliff, of course, go beyond taxes: As a result of the debt ceiling agreement reached last year, automatic government spending cuts are scheduled to take effect in 2013. The Supreme Court’s upholding of 2010’s health care legislation means many health care reforms (and some taxes) will go into effect over the next few years. Together, these issues will have a large impact on all taxpayers.

A new report released Monday by the Treasury Inspector General for Tax Administration on refundable tax credits found that they are highly vulnerable to fraud. Refundable tax credits such as the EITC, the Additional Child Tax Credit, the First-Time Homebuyer Credit, and the American Opportunity Tax Credit for education also provide valuable tax breaks for low-income taxpayers and the middle class.
TIGTA initiated its audit to determine the effectiveness of efforts by the IRS to recover refundable credits disallowed during post-refund examinations and to consider options the IRS could implement to decrease the issuance of erroneous refundable credits.

“Because of the susceptibility of these credits to fraud, and the low success rates in recovering erroneous credits once refunds have been issued, the IRS should take every reasonable step possible to identify potentially questionable credits and validate those credits before associated refunds are issued,” said TIGTA Inspector General J. Russell George in a statement.

To collect erroneous refundable credits issued to the taxpayer, the IRS frequently needs to rely on a process of refund offsets, which withhold future tax refunds to repay any amounts owed by the taxpayer. If the taxpayer does not repay the erroneous credit in a timely manner, the IRS must wait for the annual tax season to collect any money. In that case, the IRS would only be able to collect if the taxpayer is eligible for a refund.
TIGTA found that due to post-refund examinations of tax returns, taxpayers were required to repay more than approximately $2.3 billion in erroneous refundable tax credits during tax years 2006 through 2009. By the end of December 2011, the IRS had recovered an estimated $1.3 billion, of which more than 70 percent was collected through refund offsets.

TIGTA recommended that the IRS implement additional controls to identify and stop erroneous claims for refundable credits before refunds are issued, including implementing an account indicator to identify taxpayers who claim erroneous refundable credits to prevent them from erroneously receiving those claims for a specific period in the future. TIGTA also recommended that the IRS freeze and verify claims for the ACTC on all returns for which the EITC is frozen; and coordinate with the Treasury Department’s Office of Tax Policy to seek legislation to expand the EITC due diligence requirements to include the ACTC.

IRS management agreed with TIGTA’s findings and plans to take appropriate corrective actions. However, rather than implementing an account indicator to identify taxpayers who claim erroneous refundable credits, the IRS plans to develop pre-refund examination filters to ensure historical information is available and used as selection criteria. While this planned action is different than what TIGTA recommended, TIGTA said it believes that it is a viable alternative.

“As noted, we are in the process of refining the filter process to address many of the issues raised in the report,” wrote Peggy Bogadi, commissioner of the IRS’s Wage and Investment Division, in response to the report. “Our experience with the EITC indicates that the filtering process applied during initial return processing results in a better selection of claims to be referred for pre-refund examination when compared with relying solely on the presence or absence of the EITC ban indicator.”

The Internal Revenue Service (IRS) views reduced or canceled debt as “income” and you may have to pay taxes on the amount forgiven. Since 2007, about 1.8 million U.S. homeowners have sold via pre-foreclosure sale, and most of those are short sales, according to the RealtyTrac U.S. Foreclosure Sales Report. Another 12.5 million borrowers are “underwater” on their mortgages, at higher risk for so-called strategic default.

When lenders cancel a debt of $600 or more, by law it must send you and the IRS a 1099-C tax form, entitled Cancelation of Debt, which contains information regarding the canceled debt. Under the Mortgage Debt Relief Act of 2007, if your mortgage debt on your principal residence was canceled between 2007 and 2012, the forgiven amount would not be taxable. The law only applies to primary residences, not second homes or investment property.

Here’s the key. Regrettably, the Mortgage Debt Relief Act of 2007 is set to expire on Dec, 31, 2012. Rep. Charles Rangel, D-N.Y., has introduced a bill (H.R. 4202) to extend the tax relief act. If the Mortgage Debt Relief Act is not extended, the number of bankruptcies could skyrocket after 2012. Waiting to do a short sale after 2012, a homeowner may incur serious tax penalties that they would avoid by short selling before Dec. 31, 2012.

Taxpayers are required to declare any canceled debt on their tax returns by attaching Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, to the tax return. Instructions on how to fill out the form are contained in Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

As always, consult with a tax professional about your specific situation. For more details about mortgage forgiveness on first and second mortgages, or a refinanced mortgage call the IRS tax assistance line at 800-829-1040.

Taxpayers and preparers are urged to double-check their tax returns for frequently overlooked tax benefits and then file their returns electronically using IRS e-file system.

Many of the more than 11 million taxpayers who requested an automatic six-month extension this year have yet to file. Though Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in Iraq, Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due. People with extensions in parts of Louisiana and Mississippi affected by Hurricane Isaac also have more time, until Jan. 11, 2013, to file and pay.

Check Out Tax Benefits

Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other often-overlooked credits and deductions:

• Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.
• Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
• American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.

E-file Now

The IRS also urged taxpayers to choose electronic filing. The tax agency verifies receipt of an e-filed return.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.
Quick and Easy Payment Options

For unemployed workers who filed Form 1127-A and qualified to get an extension to pay their 2011 federal income tax, Oct. 15 is also the last day to pay what they owe, including interest at the rate of 3 percent per year, compounded daily. Doing so will avoid the late-payment penalty, normally 0.5 percent per month.

Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System, by electronic funds withdrawal or with a credit or debit card. There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors do charge a convenience fee. For those who itemize their deductions, these fees can be claimed on Schedule A Line 23. Those who choose to pay by check or money order should make the payment out to the “United States Treasury.”

Taxpayers with extensions should file their returns by Oct. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest and late-payment penalties will continue to accrue.

Fresh Start for Struggling Taxpayers

In many cases, those struggling to pay taxes qualify for one of several relief programs, including those expanded earlier this year under the IRS “Fresh Start” initiative.

Most people can set up a payment agreement with the IRS on line in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to six years or request a short-term extension to pay. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS.
Taxpayers can also request a payment agreement by filing Form 9465-FS. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.

Alternatively, some struggling taxpayers qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Details on all filing and payment options are on IRS.gov.

IRS YouTube Videos
Help for Disaster Victims: English | Spanish | ASL
How to Request a Copy of Your Tax Return: English | Spanish | ASL

Podcast
Disaster Assistance: English | Spanish

WASHINGTON –– The Internal Revenue Service is providing tax relief to individuals and businesses affected by Hurricane Isaac.
Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Louisiana and Mississippi will receive tax relief, and other locations may be added in coming days based on additional damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred on or after Aug. 26. As a result, affected individuals and businesses will have until Jan. 11, 2013 to file these returns and pay any taxes due. This includes corporations and businesses that previously obtained an extension until Sept. 17, 2012, to file their 2011 returns and individuals and businesses that received a similar extension until Oct. 15. It also includes the estimated tax payment for the third quarter of 2012, normally due Sept. 17.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. In addition, the IRS is waiving failure-to-deposit penalties for federal employment and excise tax deposits normally due on or after Aug. 26 and before Sept. 10, if the deposits are made by Sept. 10, 2012. Details on available relief, including information on how to claim a disaster loss by amending a prior-year tax return, can be found on the disaster relief page on IRS.gov.

The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA. For information on disaster recovery, individuals should visit disasterassistance.gov.

So far, IRS filing and payment relief applies to the following localities:
• In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes;
• In Mississippi: Hancock, Harrison, Jackson and Pearl counties.

Links:
• Publication 525, Taxable and Nontaxable Income
• Publication 529, Miscellaneous Deductions
• Tax Topic 419, Gambling Income and Expenses
• Form W-2G, Certain Gambling Winnings

YouTube Videos:
• Miscellaneous Income – English | Spanish | ASL
• Record Keeping – English | Spanish | ASL

Here are 10 things the IRS wants you to know about becoming a community volunteer for VITA or TCE.

1. No previous experience is required. Volunteers receive specialized training and – if tax preparation is not preferable – have the option of serving in a variety of other roles.
2. If you are fluent in a language other than English, you can help those who do not speak English understand their tax return.
3. IRS provides free tax law training and materials needed to prepare basic individual income tax returns.
4. Volunteers become familiar with deductions, allowable expenses and credits that benefit eligible taxpayers, such as the Earned Income Tax Credit, the Child Tax Credit and the Credit for the Elderly.
5. The hours are flexible. Volunteers generally serve an average of three to four hours per week from mid-January through the tax filing deadline, which is April 15, 2013.
6. Volunteer sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations.
7. Most VITA/TCE sites offer free electronic filing for both federal and state tax returns.
8. As a tax volunteer, veterans (and non-veterans alike) may choose to help military personnel and their families.
9. Volunteers will become part of an established program that has helped community members file tax returns at no charge for more than four decades.
10. You can make a difference as a tax volunteer.
Last year nearly 99,000 community volunteers answered the call and made a difference by preparing over 3.3 million tax returns for free at more than 13,000 locations nationwide. Anyone can volunteer for this exciting, educational and enjoyable experience. Sign up to become a tax volunteer and see what a difference learning about taxes and helping others makes in your life.
Additional information about becoming a VITA or TCE volunteer is available on IRS.gov by typing the key words “tax volunteer” in the search box. Those interested must submit Form 14310, VITA/TCE Volunteer Sign Up, by email through the IRS website.

Links:
• VITA/TCE Volunteer Sign Up Form 14310 (PDF)
• Volunteer in Your Community
• People Helping People
• Free Tax Return Preparation for You by Volunteers
• Partner and Volunteer Resource Center
• Tax Counseling for the Elderly

YouTube Videos:
• Volunteer Income Tax Assistance Recruitment – English | Spanish | ASL
• Free Help Preparing Your Tax Return – English | Spanish | ASL

Podcasts:
• Free Help Preparing Your Tax Return – English | Spanish

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees

• New Job. When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.

• Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.
Self-Employed

• Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Publication 505, Tax Withholding and Estimated Tax, has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Links:

• Form W-4, Employee’s Withholding Allowance Certificate
• Form 1040-ES, Estimated Tax for Individuals
• Form W-4P, Withholding Certificate for Pension or Annuity Payments
• Publication 505, Tax Withholding and Estimated Tax

YouTube Videos:

• Estimated Tax Payments – English | Spanish | ASL