Line items

"Fresh Start" refreshed

The IRS expanded its “Fresh Start” initiative in March to help struggling taxpayers.

For the 2011 tax year, the IRS said, it will abate the failure-to-pay penalty (0.5% per month of tax due, up to a maximum of 25%) until Oct. 15, 2012, provided the tax, interest, and any other penalties due are paid by that date. Failure-to-file penalties are not being waived.

Qualifying taxpayers include:

  • Wage earners who were unemployed at least 30 consecutive days during 2011 or 2012 up to the April 17, 2012, filing deadline.
  • Self-employed people who in 2011 experienced a 25% or greater reduction in business income due to the economy.

They must also have had income of $200,000 or less for married taxpayers filing jointly or $100,000 for single or head-of-household filers, and owe $50,000 or less in tax.

New Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship, must also be filed.

In the same announcement (IR-2012-31), the IRS said it is doubling the dollar threshold for tax balance-due amounts that qualify for the streamlined installment agreement program to $50,000. The threshold had been raised from $10,000 to $25,000 in the first Fresh Start initiative announced less than a year earlier (IR-2011-20). The maximum term for streamlined payment agreements was also raised, from five years to six years.

Portability election extended

The IRS announced in Notice 2012-21 that estates of decedents dying in the first half of 2011 may obtain an extension of 15 months from the date of death to make a “portability election” to apply the decedent’s unused estate and gift tax exclusion amount to a surviving spouse.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, raised the estate and gift exclusion amount to $5 million for decedents dying in 2011, indexed for inflation in subsequent years. Even estates valued at less than that amount, however, must file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, to make the portability election. The form is normally due within nine months after the decedent’s date of death. An automatic six-month filing extension is available, normally by filing Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, before the due date for Form 706. Estates that timely filed Form 4768 to request a six-month extension do not qualify for the longer extension under the notice.

In earlier discussions with the IRS, the AICPA had expressed its concerns and requested the Service consider relief for situations in which the estate might not have made the portability election because it did not otherwise have to file Form 706. In the notice, the IRS acknowledged such concerns.

Mandatory FBAR e-filing postponed

Treasury’s Financial Crimes Enforcement Network (FinCEN) postponed until July 1, 2013, its requirement that Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), be filed electronically. FinCEN notes that the delay in the e-filing requirement does not relieve anyone of the obligation to file a paper FBAR or postpone the paper-filing due date.

FinCEN announced last July that it had developed an electronic filing system for FBARs. Last September, it proposed making FBAR e-filing mandatory, starting with FBARs due June 30, 2012. The FBAR filing requirements, authorized under the Bank Secrecy Act, P.L. 91-508, have been in place since 1972. The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries.

No report is required for a year during which the accounts’ aggregate value does not exceed $10,000 at any time.

Noted in passing

The Tax Court correctly denied a charitable deduction for a house donated to a fire department for destruction in a firefighter training exercise, the Seventh Circuit held (Rolfs, No. 11-2078 (7th Cir. 2/8/12)).

The appellate court agreed with the IRS and Tax Court (see “Tax Matters: Burnt Offering Rejected,” Feb. 2011, page 56; 135 T.C. 471 (2010)) that the before-and-after valuation method used by the taxpayers failed to account for a key condition of the donation—that the property had to be removed or destroyed—and that the taxpayers received a benefit because having the house burned by the fire department saved them from having to pay a substantial amount to have it demolished.

The IRS in Rev. Proc. 2012-23 adjusted for inflation for 2012 the depreciation limitations and lease inclusion amounts for certain automobiles under Sec. 280F. For passenger automobiles (other than trucks or vans) placed in service during calendar year 2012 to which 50% first-year bonus depreciation applies, the depreciation limit under Sec. 280F(d)(7) is $11,160 for the first tax year. For trucks and vans to which bonus depreciation applies, the first-year limit is $11,360. If bonus depreciation does not apply, the corresponding first-year amounts for 2012 are $3,160 (passenger automobiles) and $3,360 (trucks and vans).

For passenger automobiles, the limits are $5,100 for the second tax year, $3,050 for the third tax year, and $1,875 for each successive tax year. For trucks and vans, the limits are $5,300 for the second tax year; $3,150 for the third tax year; and $1,875 for each successive tax year.


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