IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Issue Number: Special EditionTax Tip 2009-05

The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla., tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site, IRS.gov

IRS Warns Taxpayers to Beware of First-Time Homebuyer Credit Fraud

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Issue Number: IR-2009-69

IR-2009-69, July 29, 2009

WASHINGTON — The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site, IRS.gov.

IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Issue Number: IR-2009-067

WASHINGTON — With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA).

The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.

First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.
Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.

New Vehicle Purchase Incentive
ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.

Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.

Energy-Efficient Home Improvements
The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010.

Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.

Tax Credit for First Four Years of College
The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

Certain Computer Technology Purchases Allowed for 529 Plans
ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution.

Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.

Making Work Pay and Withholding
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79 percent of all returns received a refund.

Related Information

• For more on the Recovery provisions that may apply to individual taxpayers see the ARRA page on IRS.gov.

Audio Files for Podcast

• Tax Breaks for 2009 & 2010: In English and in Spanish

Videos

• First-Time Home Buyer Tax Credit


• Home Energy Credit


• Education Credits - Parents


• Making Work Pay Credit


• Unemployment Compensation

Protecting Tenants in Foreclosure Act

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

President Obama recently signed into law the Protecting Tenants in Foreclosure Act (S.896, P.L. 111-22). This federal law, which has already taken effect nationwide, extends protection to tenants in foreclosed homes. What are your rights under this law?

Q. If the property I am renting has been foreclosed on, can the new owners evict me right away?

A. No. The new law requires that tenants in foreclosed properties receive a 90-day notice prior to being evicted. Specifically, the new law requires that, in the event of a foreclosure, the new owner must allow tenants with leases to occupy the property until the end of the lease term.

There are three exceptions to this rule:

1. The lease can be terminated on 90 days notice if the unit is sold to a purchaser who will occupy the property.


2. The lease has fewer than 90 days remaining.


3. The tenancy is month-to-month or a tenancy at-will, in which case the new owners must provide the tenant with 90 days notice prior to eviction.

Q. What can I do if the new owner says that I have to leave in fewer than 90 days?

A. New owners may not be aware of the new law. If they attempt to evict you without honoring your lease or providing the required 90-day notice, inform them by certified mail of The Protecting Tenants in Foreclosure Act, which became law on May 20, 2009, and applies to state eviction proceedings. Save the return receipt and a copy of the letter.

Q. What if I am a Section 8 tenant?

A. You have all of the rights listed above regarding your lease and the requirement that the owner give you a 90-day eviction notice. In addition, the new law protects tenants receiving federal assistance. If you are renting with Section 8 housing choice vouchers, your contract continues, and the foreclosure is not a lawful reason to terminate your lease. If you have additional questions, contact your local public housing authority.

Additional foreclosure-related resources are available at the Attorney General’s Foreclosure Resource Center located on the Attorney General’s Web site, www.azag.gov, or at the Arizona Tenants Association Web site, www.tenant.net.

Seven Tips for Students with a Summer Job

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Issue Number: Summertime Tax Tip 2009-05

Many students get a summer job during their time off from school. Here are the top seven things the IRS wants everyone to know about income earned while working a summer job.

1. Taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct, visit the Withholding Calculator on IRS.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

• You are in the business of delivering newspapers.
• All your pay for these services directly relates to sales rather than to the number of hours worked.
• You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

Links:

• IRS Withholding Calculator
• Form 1040 Schedule SE

Tax Tips for Recently Married Taxpayers

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Summertime Tax Tip 2009-04

If you have recently gotten married or plan to get married in the near future, the IRS has some tips to help you avoid stress at tax time.

1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.
2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from the IRS website IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
4. Notify Your Employer Report any name and address changes to your employer(s) to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.
5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate you can print out and give it to your employer so they can withhold the correct amount from your pay.

Links:

• IRS Withholding Calculator
• Form 8822, Change of Address

Five Tax Facts about Summertime Child Care Expenses

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.


Summertime Tax Tip 2009-03

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

1. The cost of day camp can count as an expense towards the child and dependent care credit.


2. Expenses for overnight camps do not qualify.


3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.


4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.


5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information, including rules for claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• IRS Publication 503, Child and Dependent Care Expenses (PDF)

Energy Incentives for Individuals in the American Recovery and Reinvestment Act

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

Audio File for Podcast: Energy Tax Credits

The American Recovery and Reinvestment Act (ARRA) provides numerous tax incentives for individuals to invest in energy-efficient products.

Residential Energy Property Credit (Section 1121): The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
A similar credit was available for 2007, but was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient” for purposes of this tax credit. The IRS has issued guidance that will allow manufacturers to certify that their products meet these new standards.

Until the guidance is released, homeowners generally may continue to rely on manufacturers’ certifications that were provided under the old guidance. For exterior windows and skylights, homeowners may continue to rely on Energy Star labels in determining whether property purchased before June 1, 2009, qualifies for the credit. Manufacturers should not continue to provide certifications for property that fails to meet the new standards.

Residential Energy Efficient Property Credit (Section 1122): This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property. See Notice 09-41.

Plug-in Electric Drive Vehicle Credit (Section 1141): The new law modifies the credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles.

Plug-In Electric Vehicle Credit (Section 1142): The new law also creates a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.

Conversion Kits (Section 1143): The new law also provided a tax credit for plug-in electric drive conversion kits. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT (Section 1144): Starting in 2009, the new law allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

Related Items:

• IR-2009-44, Energy-Saving Steps This Year May Result in Tax Savings Next Year
• Fact Sheet 2009-10, Energy Provisions of the American Recovery and Reinvestment Act of 2009
• Energy Incentives for Businesses in the American Recovery and Reinvestment Act
• Flyers, posters and marketing products
• The American Recovery and Reinvestment Act of 2009: Information Center

Top Seven Tips for Taxpayers Starting a New Business

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

IRS Summertime Tax Tip 2009-02

Anyone starting a new business this summer should be aware of their federal tax responsibilities. Here are the top seven things the IRS wants you to know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

Links:

• Starting A Business
• Operating A Business
• Closing A Business
• Publication 4591, Small Business Federal Tax Responsibilities (PDF 470.1K)
• Publication 334, Tax Guide for Small Business (PDF 286.2K)
• Order Publication 1066C, A Virtual Small Business Tax Workshop DVD

Tax Benefits for Job Seekers

For questions, email Chuck Plake, E.A. at Plake Tax Service cplake@plakenet.com.

IRS Summertime Tax Tip 2009-01

Many taxpayers spend time during the summer months polishing their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.

Here are the top six things the IRS wants you to know about deducting costs related to your job search.

1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 529, Miscellaneous Deductions
• Tax Topic 508, Miscellaneous Expenses
• Tax Topic 511, Business Travel Expenses