The Tax Attic with Jerry Coon

November 18, 2009 // 0 Comments

Penalty provisions in fine print E-file saves taxpayers millions The Worker, Homeownership and Business Assistance Act of 2009, as signed into law by President Obama on November 6, among several important provisions, had a penalty provision inserted within the fine print of the law. I think there is a lot of fine print in some of these laws being passed by Congress. This particular penalty provision concerns the filing of partnership and Sub S Corporation tax returns. Our tax system is set up so that both partnerships and Sub S Corporations are reporting entities, technically called pass-through entities. This means usually that neither one has to pay any tax. The tax returns are used to report the income and expenses of the partnership or Sub S. These items are passed through to the partners of the partnership or the shareholders of the Sub S via a Form K-1. These partners and shareholders then report the income and expenses of the reporting entity on their personal tax returns and are responsible for any tax due to that income. This presents a small problem to the Internal Revenue Service when it comes to penalizing a partnership or a Sub S for not filing a tax return on time. For the most part, penalties are based on the amount of tax due. No tax due = no penalties. Congress has ridden to the rescue, in this instance, and instituted flat-dollar-amount penalties based on the late filing of tax returns. For partnerships and Sub S Corporations, the Worker, Homeownership and Business Assistance Act of 2009 has increased these late-filing penalties to $195 per partner or shareholder per month the return is filed late. Not too many years ago, the penalty was $50. For instance, for a partnership that has five partners and is late filing its return by two months, the penalty will be $195 times 5 partners, or $975 per month, times 2 months equals $1,950. That’s a lot of penalty! At those rates, no one is going to knowingly file a partnership or Sub S return late. Another provision in the law affects tax preparers and indirectly taxpayers. Starting in the year 2011, any tax preparer filing more than 10 tax returns must file those returns electronically. Previously, […]

The Tax Attic — with Jerry Coon

November 11, 2009 // 0 Comments

  First-time homebuyer credit extended Present homebuyer credit expanded A flurry of activity has occurred this past week in our federal government. Last Friday, Nov. 6, President Obama signed into law the Worker, Homeownership and Business Assistance Act of 2009. The main provisions of the bill extend the first-time homebuyer credit and expand the credit to present homebuyers. Our federal government has been in the habit lately of extending and expanding—mainly expanding. However, in this instance, I think this extension and this expansion are good things. The basics of the extension are two-fold. First, the $8,000 first-time homebuyer credit is extended to include purchases made from December 1, 2009, through April 30, 2010. Second, the credit will apply to contracts that are written as of April 30 as long as the actual close occurs before July 1, 2010. Under the current first-time homebuyer rules, the closing had to occur by this November 30. Now, taxpayers effectively have until next July to get all of their ducks in a row and get the $8,000. For purchases occurring in 2009, taxpayers will have the continued option to either file an amended 2008 return or wait to file the credit with their original 2009 return this coming tax season. This is actually an important decision. Currently, it is taking the Internal Revenue Service about 20 weeks to process an amended 2008 return and get the credit back to the taxpayer. They are checking out each credit carefully to make sure the applicant really does qualify for the credit. It goes without saying that $8,000 will bring out the worse in some people. So far, the IRS has prosecuted 153 taxpayers and tax preparers for filing fraudulent claims and they have another 800-plus claims that may be prosecuted. They have about 90,000 claims currently in process. As part of the amended return submission, we are attaching a copy of the closing document that clearly shows the closing date, the purchase amount, and the buyer. The buyer must coincide with the first-time homebuyer. Along with the closing document, we are also attaching a notarized statement from the buyer stating that the buyer has not owned a home in the past three years and does qualify for the credit. Hopefully, these […]