APRIL 14, 2011

On Thursday, President Barack Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act (PL 111-240). The Senate approved the bill on April 5, and the House voted in favor of it on March 3.

In March 2010, the Patient Protection and Affordable Care Act (PL 111-148) (part of the health care reform legislation) expanded the 1099 reporting requirements to include all payments from businesses aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation), and to include payments made for property, starting with payments in 2012. The 1099 Act repeals the expansion to payees that include corporations by removing IRC § 6041(i). It repeals the expansion to cover payments for property by removing the language “amounts in consideration for property,” and “gross proceeds” from section 6041(a). The act also removes IRC § 6041(j), which granted the Treasury secretary authority to issue regulations under section 6041, including “rules to prevent duplicative reporting of transactions.” These changes are effective for payments made after Dec. 31, 2011 (when the new rules were to take effect), and they revert those portions of section 6041 to how they were before the Patient Protection and Affordable Care Act.

The Small Business Jobs Act enacted a requirement that individuals who receive rental income issue Forms 1099 to service providers for payments of $600 or more. It did this by specifying that “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” The 1099 Act strikes IRC § 6041(h) in its entirety, effective for payments made after Dec. 31, 2010 (the original effective date of section 6041(h)), placing individuals who receive rental income in the same position as if the expanded information reporting requirements had never been enacted.

As a result of the repeal, the 1099 reporting rules continue unchanged: Namely, under IRC § 6041(a), “All persons engaged in a trade or business and making payment in the course of such trade or business to another person” of $600 or more must report the amount and the name and address of the recipient to the IRS and to the recipient. The Code applies this requirement to payments of “rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income,” and the Treasury regulations add, “commissions, fees, and other forms of compensation for services rendered aggregating $600 or more” as well as interest (including original issue discount), royalties and pensions (Treas. Reg. § 1.6041-1(a)(1)(i)).

This required information must be reported each calendar year for payments made during that calendar year.

The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as “a victory for taxpayers.”

Increased Penalties Not Repealed

The 1099 Act did not repeal the increase in the information reporting penalties that were mandated by the Small Business Jobs Act. The first-tier penalty under IRC § 6721 for failure to timely file an information return was increased from $15 to $30, and the calendar-year maximum from $75,000 to $250,000. The second-tier penalty was increased from $30 to $60, and the calendar-year maximum from $150,000 to $500,000. The third-tier penalty was increased from $50 to $100, and the calendar-year maximum from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increased from $25,000 to $75,000 for the first-tier penalty; from $50,000 to $200,000 for the second-tier penalty; and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increased from $100 to $250.

The increased penalties will be adjusted for inflation every five years.

The Small Business Jobs Act also similarly increased the penalties for failure to provide correct payee statements in addition to the information reporting penalties (IRC § 6722).

The increased penalty amounts were effective Jan. 1, 2011, and remain in effect after the repeal of the expanded 1099 reporting requirements.

MAY 21, 2011

For all the hoopla surrounding December's estate-tax overhaul, heirs and executors of people who died in 2010 are still struggling to make sense of the changes.

The estate tax lapsed at the end of 2009, and for much of 2010 it was unclear whether the tax would be reinstated retroactively. In late December, however, Congress allowed estates of taxpayers dying in 2010 to choose between the 2010 and 2011 systems.

The estate-tax return's due date also remains unclear. Originally it was April 18, but as of mid-May the Internal Revenue Service still hadn't issued Form 8939, which taxpayers need in order to file.

The question of which tax to choose often turns on an estate's size and the amount of capital gains on assets within it. The 2010 system imposes no estate tax, but the cost basis of assets—which determines capital-gains taxes—"carries over" to heirs. In 2011, there is a $5 million exemption per individual and top tax rate of 35%, but all assets in an estate receive a "step up" in asset basis to the value as of death.

Here is an example: John died in 2010 owning stocks, land and real estate that he acquired for $3 million, but which was worth $6 million at his death. Under the 2010 rules no estate tax is due, but John's heirs will owe capital-gains tax measured from his original purchase price when they sell.

Under 2011 rules, however, John's estate owes estate tax on $1 million. But his heirs would receive assets with cost basis marked up to the value as of death, lowering future capital-gains taxes.

Some advisers have tried to calculate the "crossover point" at which it makes sense to pay estate tax now rather than higher capital-gains tax later, says Ellen K. Harrison of the Washington office of law firm Pillsbury Winthrop Shaw Pittman.

Charles H. Wampold III of the Princeton, N.J., office of law firm Drinker Biddle is working to help a number of estates choose. For very large estates, he says, it generally makes sense to go with 2010 rules. Possible exceptions, experts say: entrepreneurs or real-estate investors whose assets have a zero or even negative cost basis due to borrowing.

For midsize estates over $5 million, he says, the decision can be "a tough call," while those with fewer assets often benefit from using 2011 rules.

Everyone who files a federal tax return must determine which filing status applies to them. It is important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

Here are eight facts about the five filing status options the IRS wants you to know in order to choose the correct filing status for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple�s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
6. A married couple may elect to file their returns separately. Each person�s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.

There�s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)

Taxpayers who need their past tax return information can obtain it from the IRS. Here are nine things to know if you need copies of your federal tax return information.

1. There are two easy and convenient options for obtaining free copies of your federal tax return information � tax return transcripts and tax account transcripts.
2. he IRS does not charge a fee for transcripts, which are available for the current year as well as the past three years.
3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions, such as those offering mortgages and student loans.
4. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data � including marital status, type of return filed, adjusted gross income and taxable income.
5. To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
6. To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
7. You should receive your tax return transcript within 10 working days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript.
8. If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current year as well as the past six years.
9. Visit the IRS Web site, IRS.gov, to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be found at IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

Link:

• Form 4506-T, Request for Transcript of Tax Return (PDF 45.3K)
• Form 4506, Request for Copy of Tax Form (PDF 42.3K)