The Internal Revenue Service may have money for you. Each year, money owed to taxpayers (as much as several million dollars all told) goes unclaimed.  Some of that money is from relatively small refunds due to taxpayers or which arise from allowable credits that can be claimed by taxpayers.  Due to the often relatively small amount of many of these refunds, much of this money goes unclaimed.  Sometimes no return was filed because the taxpayer was below the minimum income filing threshold, but nevertheless still may have withheld taxes due back.  Other times people have filed returns but have moved before their refund check reached them and the post office did not or could not forward the check. 

Was your income below the limit that requires you to file a tax return? If so, you may still be due a refund.  If you have not filed a prior year tax return and are due a refund, you should consider filing the return to claim that refund. If you are missing a refund for a previously filed tax return, you should contact the IRS to check the status of your refund and confirm your current address.

Unclaimed Refunds

Some people may have had taxes withheld from their wages but were not required to file a tax return because they had too little income. Others may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit.

• To collect this money, a Federal income tax return (1040, 1040A, 1040-EZ) must be filed with the IRS generally no later than three years from the due date of the return (there are some very limited exceptions to this rule).
• Generally, if no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
• There is no penalty assessed by the IRS for filing a late return which qualifies for a refund.
• Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling 800-TAX-FORM (800-829-3676), or can be prepared by a qualified professional tax return preparer.
• Information about the Earned Income Tax Credit and how to claim it can be obtained from your professional tax adviser or qualified tax return preparer; information also is available on the official IRS website at IRS.gov.

Undeliverable Refunds

Were you expecting a refund check but didn’t get it?

• Refund checks are mailed to a taxpayer’s last known address. Checks are returned to the IRS if a taxpayer moves without notifying the IRS or the U.S. Postal Service of the taxpayer’s new address.
• You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
• You can also ensure the IRS has your correct address by filing IRS Form 8822, Change of Address (also available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676)).

If you have any questions about obtaining your refund, or need any other assistance with a tax matter, please call Hertsel Shadian, Attorney at Law, LLC in Portland at (503) 352-6985.

In today’s economy, small-business owners sometimes look to the oldest form of commerce—the exchange of goods and services, or bartering. The Internal Revenue Service recently issued a reminder to small-business owners that bartering transactions generally have associated tax reporting, accounting and record-keeping responsibilities.

Bartering is the trading of one product or service for another. Usually there is no swap of cash. Barter may take place on an informal direct one-on-one basis between businesses and individuals, suppliers, customers, distributors, partners, contract labor, and employees, or it can take place on a third party basis through a modern Internet barter exchange. Bartering is an exchange of one taxpayer’s property or services for another taxpayer’s property or services. The fair market value of property or services received through barter is taxable income.

Record-keeping Tip:  Once you have agreed to barter transactions with a vendor or customer, you must enter the transaction accurately in your accounting and tax records. Whether you maintain your books and records manually or use one of the many accounting and tax software packages on the market today, you need to keep and record some basic information about your barter transactions.

Clearly mark or file all barter income and expense documents as “bartering,” and retain all original source documents pertaining to your barter transactions:

• Sales receipts and invoices
• Barter exchange statements and Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions

Bartering Products or Services. The most important barter tax accounting concept is that the IRS treats bartering as income received, whether you use accrual-basis or cash-basis accounting.

Direct Barter Transactions

If you engage in the direct barter of products or services with an individual or a business you will generally not receive a Form 1099-B, but the transaction must be accounted for in your books and records just the same. Think of a barter transaction as just another sales transaction of your business goods or services which you must include in your income at the time received. Accurate accounting and record keeping can help you manage barter transactions.

For example, if a doctor agrees to give an accountant a personal medical exam in exchange for personal tax return preparation, the fair market value of the medical exam is taxable to the accountant, and the fair market value of the tax return preparation is taxable to the doctor. For simplicity sake, assume the fair market value of both services is equal to $200. Note that all pieces of the transaction should be clearly marked as a bartering transaction in the books and records of both the doctor and the accountant. With the fair market value of both services being equal, both the doctor and the accountant must include $200 in their income as a result of the bartering transaction.

Record-keeping Tip: You may need to configure your accounting software to accept bartering transactions.

Barter Exchange Transactions

Exchanges occurring through a barter exchange are reported to the IRS on Form 1099-B and show the value of cash, property, services, credits or scrip added to your account by the barter exchange. Record keeping and accounting for barter exchange transactions is basically the same as for direct barter transactions except that the parties are taxed on the value of the credit units added to their account even though they may not actually receive goods or services from other exchange members until a later year. The parties generally will have additional help in determining the taxable bartering amount by information reporting from the barter exchange.

Barter exchanges record all transactions and report them to the IRS on Forms 1099-B. The value of trade dollars received for the exchanger’s products or services must be included in gross income for the tax year in which they are credited to the exchanger’s account. If a barter exchanger’s business is a corporation, the exchanger should receive just one aggregate Form 1099-B annually. If the exchanger is a partnership, an individual or a sole proprietor, the exchanger should receive a Form 1099-B from the exchange for each barter transaction with a value of $1 or more.

Bartering as Compensation

Barter can be used as compensation, too. A business can pay bartered goods or services as a bonus or as part of a compensation package to employees, partners and contractors. For example, a business may use barter bonus or sales incentive programs, with compensation including such items as vehicles, restaurant certificates or resort trips.

Record-keeping Tip: Just as cash business expenses associated with bartering are deductible, barter used as compensation is deductible and subject to employment taxes and information reporting. Barter used as a bonus or compensation for an independent contractor must be included on the contractor’s Form 1099-MISC, Miscellaneous Income, as non-employee compensation, and all barter compensation for employees must be taken into account on their Forms W-2. Barter compensation is subject to FICA, FUTA, and federal income tax withholding.

Other Examples of Bartering Transactions

Small businesses and self-employed taxpayers greatly benefit by accurately recording and reporting all income. Insufficient record keeping could cause income to be over-reported and too much tax paid or too little income reported and too little tax paid (which could result in additional penalties and interest if later discovered in a tax audit). You need good records to prepare your tax returns. The IRS of course stresses that these records must support the income and expenses you report.

Example 1.  You are a self-employed financial planner who performs services for a client, a small business corporation. The corporation gives you shares of its stock as payment for your services. You must include the fair market value of the shares of stock in your income on Schedule C or Schedule C-EZ of Form 1040. The expenses you pay in the performance of the financial planning services are also deductible.

Example 2.  You own a small apartment building. An artist trades you a painting in return for six months’ rent-free use of an apartment. You must report the fair market value of the artwork as rental income on Schedule E Supplemental Income and Loss on Form 1040. Generally, this would be the fair rental value of the apartment for six months. You can claim your normal rental expenses associated with the barter of the apartment. The artist must report the fair rental value of the apartment in income on Schedule C, Profit or Loss From Business (Sole Proprietorship), or Schedule C-EZ, Net Profit from Business, of Form 1040 as the artist would for any other sale of a painting. The artist can claim the normal cash business expenses associated with the bartered work of art such as canvas, paint, brushes, supplies and materials.

Example 3.  You are a self-employed house painter. In return for painting his personal residence, your attorney agrees to perform personal legal services. If you would normally paint such a residence for $3,000 you would report the $3,000 in your gross receipts and you would be able to deduct the ordinary and necessary business expenses associated with painting the residence (such as paint, brushes and equipment rentals) on Schedule C or Schedule C-EZ of Form 1040. The attorney must also report the fair market value of the services in gross income on Schedule C or Schedule C-EZ of Form 1040, and deduct his ordinary and necessary business expenses associated with the legal services.

Example 4.  You are a self-employed owner of an online retail Web site that sells bowling shirts, shoes, balls and supplies. In return for fully equipping a self-employed owner of an online retail fishing shop with bowling equipment with a fair market value of $1,000, you receive fishing rods and clothing also valued at $1,000. You must include the fair market value of the equipment you receive in your income on Schedule C or Schedule C-EZ of Form 1040. You will also increase your cost of goods sold by decreasing your inventory for the cost or other basis of the bowling equipment given up. The fishing shop owner will handle record keeping the same way if both maintain inventories. Both you and the fishing shop owner will report the income of $1,000.

Record-keeping Tip:  Be sure to use a reasonable fair market value for the property or services received in a barter transaction to include in your income. The transaction is not a “wash” if you report the fair market value of the property received that is greater than your cost or basis in the property given up. In Example 4, if the bowling equipment given up has a cost or other basis of $500 to you, there is a $500 gross profit on the transaction since the fair market value of the fishing equipment received is $1,000. Simply put, you should identify the transaction in your records and report the income and any related business deductions and cost of goods sold on Schedule C or Schedule C-EZ of Form 1040.

If you have any questions about the record-keeping requirements or tax implications of barter transactions, you should consult your professional tax preparer or tax advisor, or see the additional information and resources available from the IRS using the links below.

References/Related Topics:

IRS Publication 334, Tax Guide for Small Business

IRS Publication 583, Starting a Business and Keeping Records

IRS Bartering Tax Center

The Internal Revenue Service in late 2009 extended for an additional two years its program that simplifies the record-keeping burden for reporting tip income in the food and beverage industry.  The Attributed Tip Income Program (ATIP) was first announced in 2006 in Revenue Procedure 2006-30. The program, which was originally set to expire Dec. 31, 2009, was extended to Dec. 31, 2011, under Revenue Procedure 2009-53.

Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally allocated among employees based on the practices of the restaurant. From the perspective of the IRS, both employees and employers benefit from participation in the ATIP program. The IRS agrees not to initiate a tip examination during the period the employer and employee participate in ATIP, and participating employees do not have to keep a daily tip log or other tip records.

Enrollment in the ATIP program is simple. Employers elect participation by checking the designated box on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Employees who work for a participating employer can easily elect to participate in ATIP by signing an agreement with their employer to have their tip income computed under the program and reported as wages.

Form 8027 is available on www.IRS.gov, by clicking on the following link Form 8027 (and Form 8027 instructions), or by calling the IRS toll-free at 1-800-TAX-FORM (829-3676).

The IRS provides an appeals system for those who do not agree with the results of an IRS tax return examination, with other adjustments made by the IRS to their tax liability, or with collection (lien or levy) actions undertaken against them by the IRS. Here are some things to know when it comes to your appeal rights within the IRS:

1. When the IRS makes an adjustment to your tax return, you will receive a report or letter explaining the proposed adjustments. By law, this letter also should explain how to request a conference with an Appeals office in case you do not agree with the IRS findings on your tax return.
2. In addition to tax return examinations, many other tax obligations also can be appealed.  You also may appeal penalties, interest, trust fund recovery penalties, offers in compromise, liens and levies.
3. You generally can request a face to face meeting with an Appeals Officer or Settlement Officer at an IRS office located nearest your home or place of business. However, conferences also can take place by telephone.
4. Appeals conferences are informal meetings. You may represent yourself or have someone else represent you. Those allowed to represent taxpayers include attorneys, certified public accountants or individuals enrolled to practice before the IRS.
5. If you request a conference with an IRS Appeals employee and choose to represent yourself without an attorney or other professional tax advisor, you are urged to be prepared with all appropriate documentation, records, and arguments to support your position. Appeals Officers generally will review and consider all reasonable arguments and records; however, be cautioned that Appeals Officers or Settlement Officers will not consider frivolous arguments or those based on specious Constitutional grounds that have been repeatedly rejected by courts.
6. The IRS Appeals Office is separate from—and independent of—the IRS office taking the action you may disagree with. Thus, the Appeals Officer will review the disputed issues from a fresh and unbiased perspective and generally will seek to resolve the matter fairly. This includes flexibility to settle a matter on terms that are more favorable to the taxpayer than previously were proposed by the IRS, including taking into account the risks of litigation to the IRS if the matter is not resolved.
7. The Appeals Office is the only level of administrative appeal within the agency. If you do not reach agreement with IRS Appeals, or if you do not wish to appeal within the IRS, you may appeal certain actions through the courts.
8. For further information on the appeals process, consult your professional tax preparer or other professional tax advisor. You also can refer to IRS Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree, and Publication 556, Examination of Returns, Appeal Rights and Claims for Refund. For further information, see also Publication 1660, Collection Appeal Rights, which discusses how you can appeal collection actions and Publication 3605, Fast Track Mediation–A Process for Prompt Resolution of Tax Issues. These publications, along with more information on IRS Appeals, are available on the IRS website at www.IRS.gov.

Most taxpayers already have filed their federal tax returns, but many may still have questions about their refund status, proper recordkeeping, how to correct mistakes on their return, and what to do if they move. Here is some information to help:

Refund Information

You can go online to check the status of your 2009 refund 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Make sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

• Go to IRS.gov, and click on “Where’s My Refund” which will take you to a secure link to check the status of your tax refund
• Call 1-800-829-4477, 24 hours a day, seven days a week for automated refund information
• Call 1-800-829-1954 during the hours shown in your tax form instructions

What Records Should I Keep?

Normally, tax records should be kept for at least three years from the date the tax return is filed which relates to those records. However, some documents—such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property—should be kept longer. You should keep copies of tax returns you have filed and the tax forms package as part of your records. These may be helpful later in amending already filed returns or preparing future returns. There also are many records you have that may help document items on your tax return. You’ll need this documentation in case the IRS selects your return for examination. Here are some tips about keeping good records:

1. Normally, tax records should be kept for at least three years from the date the return is filed which relates to the records, because the IRS generally must assess any additional tax within three years of the return filing date (although there are exceptions to this rule).
2. Some documents—such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property—should be kept longer, in particular where it might be necessary to prove basis for capital gain or depreciation purposes.
3. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return. The most efficient manner is to keep records together by the specific tax year to which the records relate.
4. Records you should keep include copies of the tax returns you have filed and the tax forms package; bills, credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks and checking account statements; proofs of payment; and any other records to support deductions or credits you claim on your return.
5. For more information on what kinds of records to keep or how long to retain records, consult your professional tax preparer or other professional tax advisor, or see IRS Publication 552, Recordkeeping for Individuals, which is available by clicking on the embedded link herein, or by going to the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). 

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using IRS Form 1040X, Amended U.S. Individual Income Tax Return. Here are some additional things to know about amending your federal tax return:

1. If you need to amend your tax return, use Form 1040X, Amended U.S. Individual Income Tax Return.
2. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically. However, you can only paper file an amended return.
3. You should file an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
4. Generally, you do not need to file an amended return for math errors. The IRS normally will automatically make the correction.
5. You usually do not need to file an amended return because you forgot to include tax forms such as W-2s or schedules. The IRS normally will send a request asking for those documents.
6. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
7. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS campus for the area in which you live. The 1040X instructions list the addresses for the campuses.
8. If the changes involve another schedule or form, you must attach it to the 1040X.
9. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
10. If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Change of Address

If you move after you filed your return, you should send IRS Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.

For more information on checking refund status, proper recordkeeping, address changes and amended returns, consult your professional tax preparer or other professional tax advisor, or visit the official IRS website at IRS.gov.

The Internal Revenue Service (IRS) sends millions of letters and notices to taxpayers every year, many of which (not coincidentally) arrive in the wake of tax filing season. Some letters/notices are to alert taxpayers of unpaid or underpaid amounts of tax as determined by the IRS, or conversely, advise of overpaid amounts resulting in refunds or credits towards other liabilities. Some notices warn of impending collection actions by the IRS (e.g., liens or levies) for past failures to pay taxes or even failures to file returns. Some notices are to alert taxpayers of rather simple and mundane corrections made by the IRS to filed tax returns to fix simple mathematical errors. Some letters or notices request further documentation for routine information reported on a return. 

The common and even understandable first reactions to such letters or notices that arrive from the IRS might be confusion, denial, distress or even outright panic. Instead of reacting this way, you are better served by calmly reviewing and trying to understand the letter or notice, and then timely responding directly to the correspondence or immediately contacting your professional tax preparer or tax advisor to obtain assistance. To help you deal with these often unwelcome pieces of mail, here are some things you should know and consider with regard to IRS notices—just in case one shows up in your mailbox.

1. First and most importantly, don’t ignore these letters and notices. The letters and notices will continue to arrive from the IRS if you do not deal with the underlying reason or reasons causing the IRS to mail the notices to you. The likely negative ramifications of not timely responding to the letters or notices also could get progressively worse if the issues are not properly addressed, including the loss or expiration of various remedies and appeal rights. You cannot deal with the problem if you do not even acknowledge that one might exist.
2. Second and also very important, don’t panic. Many of these letters can be dealt with simply and painlessly, either by yourself, by your professional tax return preparer, or by a qualified tax attorney.
3. When you receive a notice or letter from the IRS, immediately read it closely to see exactly what the notice or letter is saying or requesting. Each letter and notice generally will offer specific instructions on what you are asked to do to satisfy the inquiry. If you do not clearly understand the notice, you can contact the IRS at the phone number which is required by law to be listed on the notice or letter. However, be aware that when you communicate with the IRS by telephone or by mail, everything you say or reveal to an IRS agent can and generally will be recorded and all information retained, including possibly for later use against you. Although you should not adopt an attitude of paranoia when dealing with the IRS, if you are at all unsure about contacting the IRS or about where you stand legally with regard to the requested information, you instead should immediately call your professional tax return preparer or a qualified tax attorney for advice on how to proceed. With a tax attorney, you also have the certainty and general protection of attorney-client privilege and confidentiality.
4. Don’t immediately assume the worst: you are not necessarily in trouble or do not necessarily owe more money when you receive a notice from the IRS. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, may notify you of changes to your account, or may request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Again, if you do not clearly understand the notice or what it is requesting, you can (subject to the warning above) contact the IRS at the phone number listed on the notice or letter. If you are at all unsure about contacting the IRS or about what you might reveal (even in seemingly casual conversation with an IRS employee), you instead should immediately call your professional tax return preparer or a qualified tax attorney.
5. Don’t immediately assume the notice or letter is correct or accurate. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise. If you do not agree with the correction the IRS made, it is important that you timely respond as requested, or immediately contact your professional tax return preparer or other tax professional to determine how you should respond (including to timely challenge the changes indicated in the notice).
6. If you choose to handle the matter on your own without counsel or another authorized representative, you should send a written explanation of why you disagree with the notice and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. (Bear in mind the caution above with regard to communications with the IRS.) Mail the information to the IRS address shown in the upper left-hand corner of the notice. The IRS advises that you should allow at least 30 days for a response, although be aware that the “response” often is a computer-generated form letter that merely states that your correspondence was received and that it is being reviewed.  Additional letters of this same nature may continue to arrive for some time before the matter is resolved.
7. The IRS advises taxpayers that most correspondence can be handled without calling or visiting an IRS office, and this generally is true. If you have questions, you can call the telephone number in the upper right-hand corner of the notice (again subject to the above caution about communicating with IRS personnel). It is a good idea to have a copy of your tax return and the correspondence available if you call to receive help from the IRS to respond to your inquiry. This information also will be crucial if you choose to seek assistance from your professional tax preparer or from a tax attorney.
8. Be aware of your rights as a taxpayer. Some notices or letters will request a taxpayer to bring additional information or records to a local IRS office, and sometimes also will request that the taxpayer appear and answer questions. Federal law requires that such notices be accompanied by IRS Publication 1 which includes a notice to the taxpayer of his or her rights (or for a company, its rights) to be represented before the IRS by an authorized representative. Whether or not such notice is included or provided, a taxpayer always has the right to be represented before the IRS by an authorized representative, even if an IRS employee says or implies that you do not need an authorized representative to help you. For more information, click on the following link for IRS Publication 1, Your Rights as a Taxpayer.
9. Always keep copies with your records of any and all correspondence you send to or receive from the IRS (especially for future reference to help a tax professional that you later might hire to take over the matter for you). Furthermore, to protect you in case you receive contradictory or erroneous advice from an IRS representative, also keep a record of the names and identification numbers of every IRS agent you speak with on the phone with regard to the matter in the letter or notice. All IRS personnel are required to give you their name and identification number, and generally will offer it at the beginning of every phone call.

For more information about IRS notices and bills and how to respond to such correspondence, consult your professional tax preparer or tax advisor, or see Publication 594, The IRS Collection Process. Information about penalties and interest also is available in Publication 17, Your Federal Income Tax for Individuals. These publication are available from the IRS website, www.IRS.gov, and also are available by calling 800-TAX-FORM (800-829-3676), or by clicking on the embedded links herein.

If you can’t meet the April deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.  Here are some things to know about filing an extension:

1. Extra time to file is not an extension of time to pay.  An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 15 deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. Determining this amount may require your best faith estimate.
2. File on time even if you can’t pay.  If your return is completed but you are unable to pay the full amount of tax due, the IRS recommends that you not request an extension. Accordingly, unless there is some other compelling reason not to file on time (perhaps as advised by your professional tax advisor or professional tax return preparer), you should file your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. If your return is prepared professionally or through tax preparation software, either should be able to provide you with an option to request a payment agreement.  Otherwise, you can apply online for a payment agreement: go to www.IRS.gov and click on the link “Online Payment Agreement Application” at the left side of the home page under Online Services. If you currently are unable to make payments, consult your professional tax advisor or call my office to learn more about your options. If you choose to proceed without professional counsel, you can call the IRS at 800-829-1040 to discuss your options.
3. Form to file.  Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by April 15, 2010, or make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868. For U.S. citizens and residents that are or will be out of the country on the due date of the return, different rules apply: see the instructions attached to Form 4868 or see the link below to IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. For military personnel that are outside of the country on the due date of the return, different rules also might apply: see Form 4868 and the link below to IRS Publication 3, Armed Forces’ Tax Guide.
4. E-file extension.  You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
5. Traditional Free File and Free File Fillable Forms.  You can use both current Free File options to file an extension. Access the “Free File” page at www.IRS.gov (the link can be found at the right side of the home page under Filing and Payments).
6. Electronic funds withdrawal.  If you ask for an extension via computer, you also can choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers. For information about these and other methods of payment, visit IRS.gov or call 800-TAX-1040 (800-829-1040).
7. How to get forms.  Form 4868 is available for download at www.IRS.gov (including by clicking on any of the embedded links on this page) or may be ordered by calling 1-800-TAX-FORM (800-829-3676). You also can obtain the form at your local IRS office. The IRS advises that telephone requests normally take 10 days to fill, so if you expect to file an extension and have not yet ordered the Form 4868, you should consider one of the alternate methods described above to obtain the form.

For further information about obtaining an extension, consult your professional tax advisor or tax preparer, or see the IRS website at www.IRS.gov.

Additional Links:

• IRS Form 9465, Installment Agreement Request (PDF 100K)
• IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
• IRS Publication 3, Armed Forces’ Tax Guide (PDF 206K)
• Official Payments Corporation  (link to officially authorized IRS federal payment provider)
• Link2 Gov Corporation  (link to officially authorized IRS federal payment provider)

Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees will now qualify for a special tax credit.  Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, 2010, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The goal of the credit is to provide a boost to eligible small businesses by helping them afford health coverage for their employees.  To this end, the government is urging small businesses and tax-exempt employers to look closely at this important tax break—which is already effective—to see if they qualify.

The maximum credit is 35% of premiums paid in 2010 by eligible small business employers and 25% of premiums paid by eligible employers that are tax-exempt organizations.  In 2014, this maximum credit is scheduled to increase to 50% of premiums paid by eligible small business employers and 35% of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. However, since the eligibility formula is based in part on the number of so-called FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.  The maximum credit goes to smaller employers—those with 10 or fewer FTEs—paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit. The IRS plans to use postcards to reach out to millions of small businesses that may qualify for the credit. The postcards will encourage small business owners to take advantage of the credit if they qualify.

More information about the credit, consult your professional tax preparer or tax advisor, or see the additional information available on the IRS Web site at www.IRS.gov. 

The Health Coverage Tax Credit (HCTC) pays 80 percent of health insurance premiums for eligible taxpayers and their qualified family members. However, many people who could be receiving this valuable credit don’t know about it, and are missing out on big savings that can help them and their families keep their health insurance.

Here are some of the more important things to know about the HCTC:

1. The HCTC pays 80 percent of an eligible taxpayer’s health insurance premiums.
2. The HCTC is a refundable credit, which means it not only reduces a taxpayer’s tax liability but also may result in cash back in his or her pocket at the end of the year.
3. Taxpayers can receive the HCTC monthly—when their health plan premiums are due—or as a yearly tax credit.
4. Nationwide, thousands of people are eligible for the HCTC.
5. You may be eligible for the HCTC if you receive Trade Readjustment Allowances—or unemployment insurance in lieu of TRA—through one of the Trade Adjustment Assistance programs.
6. You also may be eligible for the HCTC if you are a Pension Benefit Guaranty Corporation payee and are 55 years old or older.
7. The most common types of health plans that qualify for the HCTC include COBRA, state-qualified health plans, and spousal coverage. In some cases, non-group/individual plans and health plans associated with Voluntary Employee Benefit Associations established in lieu of COBRA plans also qualify.
8. HCTC candidates receive the HCTC Program Kit by mail. The Kit explains the tax credit and provides a simple checklist to determine eligibility. Also included in the Kit is the HCTC Registration Form.

For more information on the HCTC and how it may benefit you, contact your professional tax advisor or call the HCTC Customer Contact Center toll free at 866-628-HCTC (4282). For those with a hearing impairment, you can call toll free at 866-626-4282 (TTY). You also can visit the HCTC online at www.IRS.gov/hctc (The Health Coverage Tax Credit (HCTC) Program).

Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law this month.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after the date of enactment. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages. In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

It is hoped that these tax breaks will offer a much-needed boost to employers willing to expand their payrolls. Businesses and nonprofits should keep these benefits in mind as they plan for the year ahead. The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify, but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire which certifies that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement. Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on the IRS website at www.IRS.gov likely during the next few weeks.  For further information, consult your professional tax preparer or tax advisor.