The IRS launched a new Voluntary Classification Settlement Program (VCSP) for taxpayers that agree to prospectively treat workers as employees. To be eligible, the employer must have consistently treated the workers as nonemployees and have filed all required Forms 1099 for the workers for the previous three years. Taxpayers accepted into the VCSP will pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year; the taxpayer will not be subject to additional interest and penalties, or a tax audit.

For more information, see www.irs.gov/irb/2011-41_IRB/ar14.html.

The IRS has issued a December 2011 version of Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)? The EIC is a refundable tax credit for certain low-income workers. The credit is intended to offset living expenses and Social Security taxes paid. Eligible employees claim the credit on their personal income tax returns.

Employers must notify each employee who has worked for the company at any time during the year and from whom the company did not withhold income tax. However, employers do not have to notify any employee who claimed an exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.

Generally, the IRS are encouraged to notify each employee whose wages for 2011 are less than $49,078 that he or she may be eligible for the EIC. Specifically, there are seven states that require IRS EIC notification, including:

California, Illinois, Louisiana, Maryland (eff. 1/1/2012), New Jersey, Texas, and Virginia.

IRS Notice 1015 is an available online IRS publications that answers the following questions:

• Which employees must be notified about the EIC?
• How to notify employees about the EIC?
• When further action is required or not required
• Hand-delivery or delivery of Notice 797 to employees by first-class mail

 Find out more about EIC notification by downloading the Notice 1015

(Rev. December 2011) at www.irs.gov/pub/irs-pdf/n1015.pdf or by calling 1-800-829-3676.

The Treasury Department and IRS recently released proposed regulations (REG-149625-10) under section 382 concerning application of the segregation rules for certain transactions affecting ownership of a loss corporation. The proposed rules address stopping increases in direct ownership by small shareholders from giving rise to shifts in ownership.

Determining what triggers an ownership change can be an extremely rule-driven and complex exercise. In general, an ownership change can be triggered when, on a specific testing date, the percentage stock ownership of one or more 5-percent shareholders has increased by more than 50 percentage points over the lowest percentage stock ownership held by those shareholders at any time during the “testing period.” A 5-percent shareholder is defined as an individual, or certain public groups, that owns a direct or indirect ownership of 5-percent or more of a corporation.

The proposed regulation generally renders the segregation rules inoperative to transfers of loss corporation stock to small shareholders by 5-percent entities or individuals who are 5-percent shareholders. In these situations, the stock transferred will be treated as being acquired proportionately by the public groups existing at the time of the transfer. This rule also applies to transfers of ownership interests in 5-Percent Entities to public owners and to 5-percent owners who are not 5-percent shareholders Additional proposed changes for redemptions and special situations can be read in an electronic version of the proposed regulations at REG-149625-10.  

For questions regarding Sec. 382, please contact Dan DeLau at 720.227.0065 or delau@taxops.com.

T.D. 9566, 12/09/2011; Reg. § 31.6011(a)-1, Reg. § 31.6011(a)-4, Reg. § 31.6302-1

IRS has issued final regulations giving qualifying employers the option of filing an annual (instead of a quarterly) return reporting their employment tax liability (Social Security, Medicare, and withheld federal income tax). The final regulations permit certain employers to annually file a Form 944, Employer’s Annual Federal Tax Return, rather than quarterly filing Form 941, Employer’s Quarterly Federal Tax Return. The final regulations also provide guidance on the lookback period for determining the employer’s status as a monthly or semi-weekly depositor, and the minimum deposit requirements for employers required to report employment tax liabilities.

The final regulations are to be published in the Federal Register on Dec. 14, 2011, and are available at http://www.federalregister.gov under Employer’s Annual Federal Tax Return and Modifications to Deposit Rules.

The IRS recently issued standard mileage rates for 2012. These optional rates are

for taxpayers to use when calculating deductible automobile costs for business use, for medical or moving purposes, and for service to charitable organizations.

The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will remain at 55.5¢ per mile for business travel after 2011. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will decrease by .5¢ to 23¢ per mile.

To read more, see the IRS notice at www.irs.gov/pub/irs-drop/n-12-01.pdf.

The IRS has released a fact sheet that summarizes information about federal income tax return and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements, how to file a federal income tax return or FBAR, and potential penalties for failing file or pay tax. The filing requirement for foreign financial assets is also clarified. The IRS previously released an updated FBAR Frequently Asked Questions (FAQs) and a reminder to owners of foreign accounts of their annual FBAR reporting. The most recent fact sheet, Information for US Citizens or Dual Citizens Residing Outside the US, is found in FS-2011-13 at www.irs.gov/newsroom/article/0,,id=250788,00.html.

The IRS has released the 2012 version of Form W-4, Employee’s Withholding Allowance Certificate. No exemptions may be claimed by the employee if: (1) the employee’s income exceeds $950 (unchanged from 2009-2011) and includes more than $300 of unearned income (for example, interest and dividends), and (2) another person can claim the employee as a dependent on his or her tax return. Employers must withhold from the pay of any employee who had claimed exemption from withholding in 2011, but who does not provide a new Form W-4 to continue the exemption by Feb. 15, 2012.

The 2012 Form W-4 can be viewed on the IRS website at www.irs.gov/pub/irs-pdf/fw4.pdf.

The IRS has posted 2011 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and the following two supporting schedules on its website: (1) Schedule A (Form 940), Multi-State Employer and Credit Reduction Information. (2) Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers.

Form 940 for 2011 can be viewed on the IRS website at www.irs.gov/pub/irs-pdf/f940.pdf. The Form 940 Instructions for 2011 can be found at www.irs.gov/pub/irs-pdf/i940.pdf.

If number of bills is any indication, Congressional will for federal sales tax legislation is alive and well. On November 9, 2011, the third of three federal bills that would authorize states to require remote retailers to collect sales taxes on sales to in-state customers was introduced in Congress. The Marketplace Fairness Act (S. 1832), was introduced by a bipartisan group of 10 Senators. If enacted, the bill would give states the option to collect the sales taxes they are owed under current law from out-of-state businesses, rather than rely on consumers to pay those taxes to the state. The law differs from prior iterations by the breadth of bipartisan support and the latitude the bill give states to choose whether or not to collect sales taxes, thereby preserving states’ rights.

Under the Supreme Court’s 1992 Quill decision, retailers are required to collect sales tax in the states where they have a physical presence, while consumers are required to pay use tax on products where sales tax was not collected. The result puts local retailers at a competitive disadvantage because they must collect sales taxes at the point of sale, while out-of-state businesses, including Amazon and other online retailers, in effect give their customers a discount by not collecting sales tax.

The new bill provides two options by which states could collect sales taxes from online and catalog purchases. Using a new, simplified tax system, the bill would authorize the 24-Streamlined Sales and Use Tax Governing Board member states to impose a sales tax collection duty on out-of-state remote retailers. Non-Streamlined members would have the same authority for adopting minimum simplification requirements. For example, a state wishing to exercise this authority would be required to have a single state-level agency administer, collect and audit all sales taxes, including local sales taxes.

The bill also requires the use of a uniform tax base for state and local taxes. States would need to put in place software to help remote sellers identify the applicable rate and must hold remote sellers harmless if they relied on state-provided information. States would also be required to certify qualifying entities that provide approved compliance services to sellers.

Remote sellers under the bill would need to collect using the applicable destination rate, which is the sum of the state rate and the applicable local rate. In intrastate sales, states would be allowed to use origin sourcing under the SSUTA. Sellers with annual gross receipts of $500,000 or less of sales in the preceding year would not be subject to the collection and remittance requirements. The bill would mandate that any local rate changes could only be effective on the first day of the calendar quarter.

With pressure building on lawmakers to do something in a largely stalemated session, this bill offers an opportunity for Congress to demonstrate they are, in fact doing something for business and states. Stay tuned for further developments.

Click on link to read:  Shopping Mall Owner Sues Indiana over Amazon Taxes

For questions regarding SALT issues, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

On November 21, 2011, the President signed into law two new tax credits. The Returning Heroes Tax Credit is a new hire tax credit. Employers who hire veterans who have been unemployed at least 4 weeks are eligible for a new credit of 40 percent of the first $6,000 of wages (up to $2,400). Hiring a veteran that has been unemployed longer than 6 months could result in a tax credit of 40 percent on the first $14,000 of wages (up to $5,600).

Separately, the Wounded Warrior Tax Credit doubles the existing tax credit for long-term unemployed veterans with service-connected disabilities. The existing Work Opportunity Tax Credit for veterans offers employers a maximum credit of $4,800 for hiring veterans with service-connected disabilities. The new Wounded Warrior credit is 40 percent of the first $24,000 of wages (up to $9,600) for firms that hire veterans with service-connected disabilities who have been unemployed longer than 6 months.       

The credits are intended to incent employers to hire the growing number of veterans, particularly those who have been unemployed for some time. According to White House data, approximately 240,000 veterans of the wars in Iraq and Afghanistan remain unemployed, while a total of 850,000 veterans overall are out of work. To compound the problem, the Obama administration reports that 1 million other service members are expected to return to civilian life by 2016.

Under the Act, employers will be able to claim the credits for qualified veterans who begin work for the employer after Nov. 21, 2011 and before Jan 1, 2013. The new legislation also provides job training to help returning vets return to work.