IRS Launches Mobile App

The IRS has released an app that allows taxpayers to check the status of their tax refund and to get other tax news and information.  The app is called "IRS2Go."  You can find out more at this page on the IRS website.

Itemizers Can File Starting February 14

The IRS today announced that it will start accepting tax returns with itemized deductions on February 14.  The IRS had previously announced that there would be a delay in accepting returns from itemizers.  The last-minute tax legislation passed by Congress on December 17th affected certain types of deductions, and the IRS said it needed time to update its computer systems for the changes.

Tax Deduction Available for Certain Types of Drywall Damage

Taxpayers who have suffered damages from certain types of imported drywall may be able to take a tax deduction for the damages.  The Consumer Protection Safety Council says it has received several-thousand reports of "corrosive drywall" damage, including blackening or corrosion of copper wiring and copper elements of household appliances between 2001 and 2009.

Homeowners who have paid to have these drywall problems fixed can potentially take a casualty loss on their tax return.  Click here to read IRS guidance on the issue from this past fall.

As explained in this Dinesen Tax Times article, a casualty loss deduction is only available to taxpayers who itemize, and the deduction amount must be reduced by $100 and by 10% of your adjusted gross income.

IRS Says Itemizers Will Have to Wait a Bit to File

The IRS on Thursday announced that its computer systems won't be ready to handle certain types of tax returns until mid-to-late February.  This is because of certain tax law changes enacted in last week's tax bill passed by Congress.

The IRS says people who itemize deductions, people who claim a "front-side" deduction for college expenses, and K-12 teachers who take the "front-side" deduction for purchases of classroom supplies will have to wait to file until sometime in February. 

The IRS says it will soon give a more-solid date for when these types of returns can be filed.

Standard Deductions Increase Slightly for 2011 Tax Returns

On Thursday the IRS released the standard deduction amounts for 2011.  This will affect your 2011 tax return that you'll file in 2012.

• The personal exemption amount will increase to $3,700 (up from $3,650 for 2010 returns).
• The standard deduction for married couples will be 11,600 (up $200 from 2010); $5,800 for single and married filing separately (up $100); and $8,500 for head of household (up $100).
• The tax bracket thresholds will increase slightly.  For example, the 25% tax bracket for a married couple will begin at $69,000 (up $1,000 from 2010).

Read more in this IRS news release.

The Importance of Documenting Charitable Contributions

The Dinesen Tax Times has been providing a series of articles about charitable contributions this month (in between the updates on the Congressional debate over taxes ... and of course, Wesley Snipes!).  A recent Tax Court case fits in nicely with that series of articles, in particular this article about documenting charitable contributions.

The Tax Court case involved a couple (a Mr. and Mrs.  Murphy) from California who had more than $27,000 of charitable contributions disallowed by the IRS on their 2006 tax return.  The Court ruled against the couple, costing them nearly $11,000 in taxes and penalties.

The case centered around a lack of documentation for the contributions.  According to the Court report, the Murphys had no receipts for any of the contributions they made.  In one instance, the couple donated items to the Salvation Army and could have gotten a receipt, but chose not to because they "didn't want to wait in line to get one."

Mr. Murphy told the Court that he kept a journal that detailed all of the contributions, but the journal was stolen when his car was broken into in 2007.  When things like that happen, a taxpayer can reconstruct their deductions using credible evidence.  In this case, though, the only evidence offered was the testimony of Mr. Murphy.  The couple also tried to invoke the "Cohan Rule," which allows for the use of reasonable estimates (the Cohan Rule is another blog post for another day), but again, the taxpayer has to have credible evidence on which to base the estimates.

In the end, the Murphys lost $27,000 in deductions for charitable contributions, amounting to additional tax owed of $9,011.  The Tax Court also found the couple to be subject to the 20% "negligence penalty," which tacks on another $1,802 in penalties.  In ruling that the couple was negligent, the Court said:

Even if Mr. Murphy's journal was in fact stolen, there is no evidence that he made a reasonable attempt to reconstruct his contributions.  We therefore hold that the petitioners failed to meet their burden of showing that the reasonable cause and good faith exception applies.  Accordingly, the Court concludes that the petitioners are liable for the ... accuracy-related penalty....

The moral?  Keep good records, and if your records are lost, destroyed or stolen, do all you can to reconstruct them!  The IRS will not rely on your "word" alone.  That goes for all your tax-related records, not just records of charitable contributions.

Tax Problems for Rapper Doug E. Fresh

Rapper/record producer/beat-boxer Doug E. Fresh appears to be in trouble with the IRS.  Fresh owes more than $2.2 million in back taxes, and the IRS has filed a lien against him in New York.  It's not the first time Fresh has had problems with the IRS; the IRS came after him in 2008 for $367,000 in back taxes.

Read more here and here.

The IRS is Now on Twitter

The IRS announced yesterday that it now has a Twitter account.  From "IRS Special Edition Tax Tip 2010-14":

The Internal Revenue Service is using Twitter and other social media tools to share information with taxpayers and the tax professional community.

The IRS Twitter news feed, @IRSnews, provides the latest federal tax news and information for taxpayers. The focus of the IRS Twitter messages will be on easy-to-use information, including tax tips, tax law changes, and important IRS programs such as e-file, the Earned Income Tax Credit and “Where’s My Refund." Anyone with a Twitter account can follow @IRSnews by going to http://twitter.com/IRSnews.

Another important IRS Twitter feed, @IRStaxpros, is designed for the tax professional community. Follow @IRStaxpros by going to http://twitter.com/IRStaxpros.

The IRS also tweets tax news and information in Spanish at @IRSenEspanol. Follow this Twitter feed by going to http://twitter.com/IRSenEspanol.

The IRS Twitter feeds will work in conjunction with http://www.irs.gov/  and the IRS YouTube channels to bring IRS information direct to taxpayers. Since August of 2009, there have been more than 1 million views of videos on the IRSvideos ( http://www.youtube.com/irsvideo), IRS Multilingual (http://www.youtube.com/user/IRSvideosmultilingua) and IRS American Sign Language (ASL) ( http://www.youtube.com/IRSvideosASL) channels.

In addition to Twitter and YouTube, the IRS provides additional social media tools to inform and assist taxpayers.

IRS Announces Mileage Rates for 2011

The IRS has released the mileage rates for 2011.  The regular mileage rate increased by 1 cent; the rate for medical mileage increase by 2.5 cents; and the rate for charitable mileage remains the same as in 2010.

• Mileage rate for 2011:  51 cents per mile (up 1 cent from 2010)
• Medical mileage rate:  19 cents per mile (up 2.5 cents from 2010)
• Charitable mileage rate:  14 cents per mile (same as 2010)

Wall Street Journal Reports - "'Audits from Hell' Target Rich"

The Wall Street Journal had an article recently said said the IRS is targeting wealthy taxpayers and their financial arrangements for audit.  The audits are being conducted by a new IRS unit called the Global High Wealth Industry Group.  People who have gone through one of these audits say the audits seem unusually harsh.

According to the article:

"The IRS group is focusing on many kinds of financial instruments and asset classes, from derivatives to real estate—such as, say, a stake in a winery in Europe—as well as trusts, royalty and licensing agreements, revenue-based or equity-sharing arrangements, private foundations, privately held companies and partnerships."

You can read the complete Wall Street Journal article here.

IRS Looking for Taxpayers Who Are Owed Refunds

The IRS says it's looking for more than 110,000 taxpayers (111,893, to be exact) whose tax refund checks have been returned as undeliverable due to bad addresses or other mailing issues.  If you think you're one of those 111,893 people still waiting on a refund check, you can visit the IRS's "Where's My Refund" page on-line to update your address.  Here is the link.

These refund checks total $164.6 million, or an average of $1,471 per taxpayer.

IRS Releases Retirement Plan Limits for 2011

The contribution limits to IRAs and other retirement plans will stay the same in 2011 as they were in 2010.  The contribution limit to an IRA will remain at $5,000 for people under the age of 50, and $6,000 for people age 50 and older.  The contribution limit to a 401(k) plan will remain at $16,500 for those under the age of 50, and $22,000 for those age 50 and older.

IRS Private Letter Ruling on Same-Sex Couples in California

The IRS recently issued a "private letter ruling" that affects same-sex married couples in California. Read more here: http://online.wsj.com/article/SB10001424052748704080104575286931017169308.html.

What affect does this have on same-sex married couples in Iowa? It really won't have much of an affect, because this ruling deals with "community property" rules. Iowa is not a community property state. I'll post a more thorough analysis of the ruling soon.