IRS News:

Things You Need To Know For Tax Season

As April 15^th approaches, the IRS releases more information to help tax payers submit accurate and timely returns. In order to help your clients maximize their returns while avoiding penalty, we have summarized 4 noteworthy items the IRS has recently reported.

Severe Penalties in Store for Individuals and Businesses Who Submit Fraudulent Excise Phone Tax Returns
The IRS has already exposed fraudulent requests for excise phone tax returns made by tax preparation businesses. IRS criminal investigators have requested search warrants for businesses in the following cities: Atlanta , Ga. ; Dallas , Tyler and Athens , Texas ; Riverside , Calif. ; Miami , Fla. ; and New Orleans , La. . Businesses allegedly accused of filing faulty claims have been temporarily closed, equipment and paperwork having been seized pending further investigation.

“We want everyone who is eligible for the telephone tax refund to claim it but not to inflate the amount requested,” said IRS Commissioner Mark W. Everson. “We have seen limited but serious instances of abuse, and we’ve sent in criminal investigators to pursue the matter accordingly.”

Regardless of these reported abuses, the IRS continues to urge tax payers not to overlook their excise phone tax returns. To request a refund, business owners and non-profit organizations should complete Form 8913, Credit for Telephone Excise Tax Paid and attach it to their regular return. In order to calculate their refund, they must use the new IRS formula. First compare two telephone service statements: April, 2006 and September, 2006. Calculate the tax percentage of each bill (April contains a tax on local and long-distance service while September only includes a tax on local telephone service). The difference between these two percentages must then be applied to the quarterly or annual phone charges to determine their refund. You can find more information on the federal telephone excise tax refund in your 2006 tax return materials, or visit the IRS.gov.

A Reminder that Foreign Sources of Income Must be Reported
All US citizens are required to report income earned through foreign sources, regardless of their current place of residence. The IRS reminds taxpayers that the foreign income rule applies whether or not an individual received a Form W-2, Wage and Tax Statement, or a Form 1099. Foreign sources of income include both earned and unearned income. The IRS notes examples of such income, including wages and tips, interest, dividends, capital gains, pensions, rents, and royalties. Qualifying US citizens who do not reside in the United States may be able to exclude up to $82,400 of their 2006 foreign source income. For more information visit the IRS website at www.IRS.gov or call 1-800-TAX-FORM (800-829-3676).

Reporting Gambling Income and Losses
Gambling winnings, including the market value of noncash prizes, must be reported to the IRS. This includes but is not limited to the following sources: lotteries, raffles, horse and dog races and casinos, and non-cash prizes such as cars, houses, trips, etc. The payer of your winnings may be able to provide you with a W-2G; your payment may also have already included federal income tax withholdings. The IRS reminds tax payers that the full amount of their gambling income must be reported on line 21, Form 1040. Form 1040A or 1040EZ cannot be used. Losses, when they do not exceed gains, can be deducted on line 27, Schedule A (Form 1040). Do not report losses unless you can document them with receipts, statements, tickets, or other viable records.

Alimony: Some Tax Payers May Be Eligible to Claim Deductions While Others Report This Additional Income
While child support is never deductible, alimony, depending on the circumstances, may be. If you are making alimony payments per a divorce decree or agreement, chances are they are deductible on your tax return. If you are receiving alimony payments, they must be reported as income. The IRS suggests tax payers receiving alimony either increase their withholdings in order to account for the alimony, or anticipate tax payments on this income. You are also required to provide your social security number to the individual paying the alimony to avoid a $50 penalty. Tax payers who paid or received alimony must use Form 1040. For more information, read Publication 504, Divorced or Separated Individuals, available on the IRS Web site at www.IRS.gov or call 800-TAX-FORM (800-829-3676).

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