Money Matters: The latest tax guidance from the IRS

By James W. Rahmlow

The Daily Record Newswire

Here's a quick glimpse of the most recent news and information from the Internal Revenue Service:

Carryover Basis for 2010 Decedents

In the recent Rev. Proc. 2011-41, the IRS finally released its long awaited guidance on the manner for the estates of decedents dying in 2010 to elect carryover basis. Allowing carryover basis was provided in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010; however, the mechanics of making the election are just now being finalized.

As a result of the above mentioned tax act, estates of taxpayers dying after Dec. 31, 2009 and before Jan. 1, 2011 have the option of either utilizing the estate tax structure for 2010 or file an estate tax return (when required) tax under the 2009 rules, but must use a modified carryover basis system. In order to elect to apply the carryover basis rules for decedents dying in 2010, estates must make the election (which is irrevocable) on Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent.

While the IRS originally indicated that estates would have 90 days after the finalization of Form 8939 to file the form, they now are stating that the form will be due Nov. 15, 2011. As yet, the final Form 8939 has not been posted on the IRS website although the IRS indicates that the form will be posted in the early fall of 2011.

Requesting an exemption from filing a Form 990

Form 8940, Request for Miscellaneous Determination has recently been issued by the IRS at www.irs.gov. The form may be used to request advance approval of a number of activities that a not for profit performs (including certain private foundation activities).

In addition, a tax exempt organization can use the form to request exemption from Form 990, Return of Organization Exempt From Income Tax, and its filing requirements. The Form 8940 would also be used in instances when a tax exempt organization is requesting exemption from Form 990-EZ or Form 990-N.

Aug. 31 deadline for offshore disclosure

As previously mentioned in this column, Aug. 31 is the deadline for taxpayers who have previously undisclosed foreign bank accounts to voluntarily disclose those accounts under the IRS's 2011 Offshore Voluntary Disclosure Initiative (OVDI). While taxpayers would have to pay back taxes on any earnings for the past eight years, plus a penalty of 25 percent of the highest balance in the bank account during those eight years, the IRS emphasizes that this is as low a settlement as will be available and that future compliance will only be more costly.

It should be noted that the 25 percent decreases to 12.5 percent of the highest balances on accounts of less than $75,000 and a 5 percent penalty for certain inherited accounts. Taxpayers can request an extension past the Aug. 31 date if they make a good faith attempt to comply, but the extension is not automatic.

Amended return tax tips

On its website, the IRS provided a tax tip which summarized ten facts about submitting amended U.S. Individual Income Tax Returns on Form 1040X. The returns that can be amended on the 1040X are the following forms (1040, 1040A and 1040EZ).

The amended return generally must be filed within three years of the filing of the original return. The most important take away and the question that I get asked most often is the processing time. The IRS indicated that "normal" processing time is eight to 12 weeks.

August interest rates

In Rev. Ruling 2011-16, the IRS issued its Applicable Federal Rates (AFR) and Adjusted AFR for August 2011. Below is a summary of those rates.

Applicable AFR

Short-term: 0.32%

Mid-term: 1.88%

Long-term: 3.79%

Adjusted AFR

Short-term: 0.44%

Mid-term: 1.60%

Long-term 3.75%

IRS participates in social media platforms

Following the IRS is not restricted only to www.irs.gov. Per the website, the IRS participates on the following social media platforms:

* YouTube -- There are short, information videos on various tax related topics. They are available in English as well as a variety of other languages and also are available in American Sign Language (ASL).

* Twitter -- Tweets from the IRS cover news for tax professionals and hiring initiatives as well as a variety of tax related announcements.

* Facebook -- The IRS has set up Facebook pages for individuals needing help in resolving long standing issues with the IRS.

Audit Technique Guide for attorneys

The IRS has recently issued an Audit Technique Guide (ATG) that covers audit examinations of attorneys. While the IRS stresses that the guide is not an official pronouncement of the law or the position of the Internal Revenue Service, it provides a fairly detailed description of the audit process and the audit issues.

The guide is available at the IRS website at www.irs.gov/businesses/small/article/0,,id=241098,00.html or you may contact me for a copy.

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James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at jrahmlow@mmb-co.com.

Published: Tue, Sep 6, 2011

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