Payroll Tax Cuts on the Horizon
On Friday, February 17, 2012, Congress reached an agreement to extend the highly-debated payroll tax cuts through the end of 2012. Congress originally enacted payroll tax cuts as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and later extended these payroll tax cuts through February, 2012 in The Temporary Payroll Tax Cut Continuation Act of 2011, which was signed by President Obama on December 23, 2011.
The payroll tax cuts were included in the Middle Class Tax Relief and Job Creations Act of 2012, which was signed by President Obama last night. Because of this extension, the employee portion of the social security tax withholding remains at 4.2% for 2012 (a reduction from 6.2%).
IRS Form 2848
Effective March 1, 2012, tax practitioners may no longer file one (1) Form 2848, Power of Attorney, for a married couple who filed a joint return. The most recent instructions to the Form 2848 require that a tax practitioner must have a separate Form 2848 for a husband and wife that filed a joint return, even if the same tax practitioner represents both individuals.
Additionally, the Form 2848 now requires a tax practitioner to include his or her preparer tax identification number (PTIN).
Another Offshore Voluntary Disclosure Program
The IRS has recently reopened its offshore voluntary disclosure program with a few changes. On January 9, 2012, the IRS announced that it had collected more than $4.4 billion under the two previous disclosure programs. The offshore voluntary disclosure programs were originally adopted to allow people to disclose offshore assets and to get current with filing obligations, while paying lesser penalties to the IRS. There are severe penalties for failing to disclose offshore assets to the appropriate governmental entity, including a penalty of up to 75% of the amount in the offshore account.
The current program is similar to the program that opened in February 2011 and continued through September 9, 2011. Presently, there is no set deadline to apply for the current disclosure program; however, the IRS announced that it may change this program at any time, including the amount and severity of the applicable penalties.
Current participation in the offshore disclosure program includes a penalty of 27.5% of the highest aggregate balance in the foreign bank account/entities or value of the foreign assets during the eight (8) full tax years before the disclosure (an increase from 25% of this same amount in previous programs). Additionally, participants in the disclosure program must file all original and amended tax returns for the immediate eight (8) years and make all payments for back-taxes, including interest and penalties (including accuracy-related penalties if applicable) for such years.
For certain taxpayers whose offshore accounts or assets did not exceed $75,000, the penalties may be reduced from 27.5% to 12.5% (or 5% in some cases).
Another New Form for Foreign Assets
Taxpayers who own specified foreign financial assets must file Form 8938, Statement of Specified Foreign Financial Assets, for the 2011 tax year.
U.S. citizens, resident aliens of the United States for any part of the year, or individuals electing to be classified as a resident alien of the United States for purposes of filing a joint return, who own specified foreign financial assets meeting a certain threshold must file Form 8938, Statement of Specified Foreign Financial Assets, for the 2011 tax year and beyond, unless an exception is met.
These covered individuals must file Form 8938 if the following thresholds are met:
-for unmarried taxpayers living in the United States (and for married taxpayers filing a separate return living in the United States), if the total value of the specified foreign financial assets exceeds $50,000 on the last day of the year or $75,000 at any time during the year; and
-for married taxpayers filing a joint return and living in the United States, if the total value of the specified foreign financial assets exceeds $100,000 on the last day of the year or $150,000 at any time during the year.
There are several thresholds for other categories of taxpayers and several examples contained in the instructions to the Form 8938.
For purposes of Form 8938, specified foreign financial assets include:
-any financial account maintained by a foreign financial institution; and
-to the extent held for investment and not held in an account maintained by a U.S. or foreign financial institution, any stock or securities issued by someone that is not a U.S. person, any interest in a foreign entity, and any financial instrument or contract that has an issuer or counterparty that is other than a U.S. person.
If the taxpayer reports the specified foreign financial assets on a timely filed Form 5471 or Form 8865, then the taxpayer must reference these other forms on Form 8938 without completing the entire Form 8938. There are numerous other exceptions that apply to the Form 8938 depending upon the circumstances.
The IRS also intends to issue regulations and further guidance requiring domestic entities to file Form 8938. However, currently, domestic entities are not included in the filing requirements for the 2011 tax year.
This form is in addition to the Report of Foreign Bank and Financial Accounts (FBAR).
Depreciation in 2012
Reminder, that bonus depreciation for qualified property acquired and placed in service after December 31, 2011 and before January 1, 2013 has been reduced from a one hundred percent (100%) deduction to a fifty percent (50%) deduction. However, there are certain exceptions for aircrafts and long-production period property.
Additionally, the IRC §179 expense election has been reduced from $500,000 in 2011 to $139,000 in 2012. Further, the amount allowed for the IRC §179 election is phased out dollar for dollar once a taxpayer places $560,000 of assets into service in 2012.
Streamlined Installment Agreement
The IRS has a streamlined installment agreement program for taxpayers based on the size of the tax debt. In previous years, taxpayers who had outstanding tax liabilities of less than $25,000 could enter into an installment agreement with the IRS without the need for disclosing financial information as long as the debt would be paid off in five (5) years. The IRS recently broadened the streamlined installment agreement process.
The streamlined installment agreement process now applies to taxpayers with outstanding tax liabilities of less than $50,000 who will pay off such liability in six (6) years or less.
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