STOCK BASIS CHANGE REPORTING POSTPONED
The IRS provided transitional relief from the information reporting requirements that apply to issuers of stock regarding organizational actions that affect stock basis (Notice 2011-18).
IRC § 6045B, enacted by the Energy Improvement and Extension Act of 2008, PL 110-343, instituted a number of new information reporting requirements for issuers of stock, stockbrokers and mutual funds. One of the new requirements is that, for organizational actions beginning in 2011, an issuer of stock must report to the IRS any organizational action (such as a stock split, merger or acquisition) that affects the stock’s basis.
When an organizational action occurs, the issuer generally must report the action to the IRS by filing a return within 45 days. The issuer must also furnish a corresponding statement to each nominee of the stockholder (or to each stockholder if there is no nominee) by Jan. 15 of the following year. Under regulations issued last year, instead of filing a return with the IRS within 45 days, the issuer can post the return to its website (Treas. Reg. § 1.6045B-1(a)(3)).
The IRS has not yet developed the return for issuers to use to report organizational actions or determined what information will be required on the return. As a result, the IRS is waiving the penalties under section 6721 for a failure to file an issuer return within 45 days of an organizational action taken in 2011, provided that the issuer files the issuer return with the IRS (or posts the return on its website as provided in the regulations) by Jan. 17, 2012.
LIEN FILING THRESHOLD RAISED, OTHER COLLECTION RELIEF ANNOUNCED
The IRS issued a news release (IR-2011-20) detailing changes in its lien filing and offer-in-compromise (OIC) practices designed to help taxpayers pay their back taxes and avoid liens. The changes to the IRS’ lien filing practices include:
- Increasing the dollar threshold above which liens are generally filed.
- Making lien withdrawals easier after the taxes have been paid.
- Withdrawing liens in most cases when a taxpayer enters into a direct debit installment agreement.
The IRS also announced that it is making it easier for taxpayers to enter into an installment agreement and is expanding its “streamlined” OIC program.
The IRS uses liens to establish a legal claim to a taxpayer’s property when the taxpayer has an unpaid tax debt. Once filed, a lien gives the IRS priority over certain other creditors. While under IRC § 6321 a tax lien automatically arises when a taxpayer fails to pay taxes due after a notice and demand for payment from the IRS, the Service will file a lien when a taxpayer’s past-due balance exceeds a certain dollar amount. The IRS announced that it will “significantly increase the dollar thresholds” above which liens are generally filed; however, it did not announce what the new threshold would be. The Internal Revenue Manual currently calls for the automatic filing of a lien for unpaid balances above $5,000 (IRM § 126.96.36.199.1).
Under the new procedures, the IRS will withdraw a lien once the taxpayer has fully paid the taxes due, if the taxpayer requests it. The IRS also says that it will streamline its internal procedures to allow collection personnel to withdraw liens.
For unpaid assessments of $25,000 or less, the IRS will allow lien withdrawals if the taxpayer enters into a direct debit installment agreement or converts a regular installment agreement to a direct debit installment agreement. The IRS says it will also withdraw liens on existing direct debit installment agreements upon taxpayer request. There will be a probationary period before the lien is withdrawn to satisfy the IRS that the direct debit payments will be honored.
Currently, only small businesses with under $10,000 in liabilities can participate in the IRS’ streamlined installment agreement process. The IRS is raising the maximum to $25,000. Small businesses will then have 24 months to pay off their tax debt.
In addition, the IRS is expanding a new, streamlined OIC program to allow taxpayers with annual incomes up to $100,000 to participate. The tax liability maximum is being raised from $25,000 to $50,000.
ART APPRAISAL THRESHOLD RAISED TO $50,000
An IRS internal memo (SBSE-04-0111-008) dated Jan. 27, 2011, more than doubles the threshold at which examiners must refer taxpayer valuations of artwork for estate tax purposes to the IRS Office of Art Appraisal Services for review, from $20,000 to $50,000. The memo amends sections 188.8.131.52.8.1 and .2 of the Internal Revenue Manual to reflect the higher amount. For an article on the subject, see “Valuing Art for Tax Purposes,” JofA, July 2010, page 30.
INSTRUCTIONS CHANGED FOR MEDICARE PREMIUMS IN SELF-EMPLOYMENT HEALTH CARE DEDUCTION
With so little fanfare that practitioners might not have noticed, the IRS revised instructions for Form 1040 that appear to reverse its long-held position that an above-the-line deduction for self-employed health care premiums may
not include amounts paid for Medicare Part B coverage. As the Service had explained in Field Service Advisory 3042 on Dec. 19, 1995, the amount of such a deduction is limited by section 162(l)(2)(A) to the amount of earned income derived by the taxpayer from the trade or business “with respect to which the plan providing the medical care is established” and that, as a federal program, Medicare Part B is not a plan established with respect to a trade or business. That position had been reflected as recently as in the tax year 2009 Publication 535, Business Expenses, and the Form 1040 instructions for line 29: “Medicare premiums cannot be used to figure the deduction.” Contrast, however, the same line on the tax year 2010 instructions: “Medicare Part B premiums can be used to figure the deduction.”
Kelly Phillips Erb, blogging at taxgirl.com, says she sought in vain for any official announcement of or rationale for the change. But she noted that the change had been reported in at least one news article (tinyurl.com/6bmbmxc) and on a Wall Street Journal blog (tinyurl.com/4cnw48y). An IRS spokesman, Eric Smith, confirmed to the JofA that the instructions on the issue for the 2010 Form 1040 may be relied upon. Smith said the change had been based on the analysis in Notice 2008-1. The notice, which was issued Dec. 13, 2007, provided rules under which a 2% shareholder-employee of an S corporation is entitled to a deduction for accident and health insurance premiums paid or reimbursed by the S corporation and included in the shareholder-employee’s gross income.
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