2009 Year-End Tax Planning In This Update: I. Introduction II. Roth Conversions – 2009 III. Roth Conversions - 2010 IV. Year-End Portfolio Review/Planning V. Traditional Year-End Tax Planning Ideas

I. Introduction

Upon review of last year’s JKFA Year-End Tax Update, we are happy to report that our forecast of no significant tax increases in 2009 in light of the dire straights of the US economy, proved to be true. We knew “change” was coming, but it was a matter of when. Now that the US economy is, seemingly, back on its feet, we are fairly confident that there will be significant tax law changes in 2010, which will likely revolve largely around tax increases and a broadening of the tax base. As the future law changes are all unknown at this point, most of our 2010 tax planning is going to come as a knee-jerk reaction, once we know the rules and parameters.

In the meanwhile, we will discuss in this year-end newsletter some tax planning opportunities which you may wish to consider given your particular tax situation, including, first and foremost, the expansion of the Roth conversion rules which will apply to all taxpayers as of January 1, 2010.

II. Roth Conversions – 2009 Prior to the new Roth conversion rules, effective as of January 1, 2010, eligibility for Roth conversions has been limited to taxpayers whose adjusted gross income (without regard to the Roth conversion itself) was less than $100,000. As a result, from our firm’s experience, most Roth conversions, to date, have involved clients taking advantage of “loss year planning”. That is, they effectuated Roth conversions in loss or low income years, in order to offset what would otherwise have been unused deductions and/or personal exemptions. Often, we have had situations where the client contributed to a taxable retirement account in a prior year and received a 38% (combined Federal and State) tax savings, but were then able to convert to a Roth IRA in a later year, at a “zero”, or much lower effective tax rate, given their then current particular deductions and facts. This, of course, resulted in a very favorable “tax arbitrage” opportunity, albeit, unplanned upfront (i.e. no one anticipates or plans for a later loss year, but it does happen for a number of our clients who are active participants in the financial markets).

With this background in mind, Roth conversions prior to year-end are still a very viable planning opportunity for taxpayers who have experienced a less than stellar year in 2009, income-wise. The objective of doing a Roth conversion in 2009, again, is to absorb wasted deductions and/or to effectuate the conversion at a very low/favorable tax rate.

Concerning this subject, we have read articles and have heard of other “advisors” telling clients that it would be unwise to convert in 2009 because the new rules in 2010 allow taxpayers to defer paying the tax over a two-year period. While we would always agree that paying taxes later is better, the 2009 Roth conversion planning opportunity involves taking advantage of a lower effective tax rate, via the wasted deductions and the known income tax rates for 2009. We do not yet know what the effective tax rates will be for 2010- 2012, but we can be pretty sure that they will be higher than the 2009 rates.

If anyone is going to take advantage of a 2009 Roth conversion, they need to do so, immediately, by projecting out their 2009 taxable income, without the Roth conversion, and then determine what level of a conversion amount would be most tax effective. When in doubt, one should always “over-convert”, as one can always then un-convert any excess prior to the extended due date of their 2009 tax return (e.g. October 15, 2010). This is basically being able to do year-end tax planning, after year-end, once your other 2009 tax numbers are known.

III. Roth Conversions – 2010

Until now, most all of our higher income taxpayer clients have been shut out of the Roth market due to the adjusted gross income phase-outs. The sole exception to this rule has been taxpayers in single member or multi-member 401(k) plans which have allowed for the Roth designations of their elective deferrals. These plans have, thus, allowed properly situated taxpayers to “jump start” the buildup of their Roth retirement account by foregoing the income tax deduction otherwise available to them. However, as of January 1, 2010, all taxpayers will now have an opportunity to “catch-up”, as all taxpayers will be able to convert non-Roth retirement accounts to Roth accounts, without regard to any adjusted gross income limitation.

Please note that this Roth conversion opportunity is also going to be available to those taxpayers who have continued to make non-deductible IRA contributions over the years, due to the fact that they were unable to make deductible IRA contributions as a result of being covered under a qualified plan and given that their adjusted gross income exceeded the applicable limitation.

Surprisingly, for many of us who have been making such non-deductible IRA contributions, we now find that we have really been making Roth contributions the whole time, but we didn’t know it. The reason being is that as of January 1, 2010, we can convert our non-deductible IRAs to Roth IRAs and only pay tax on the accumulated values of the non-deductible IRAs in excess of the sum of our non-deductible contributions made over the years. Hence, we have, essentially, been making Roth contributions all these years, even though we were not eligible to. An additional benefit, of course, is that Roth IRA’s are not subject to the minimum distributions rules at age 70 ½. Hence, further tax-deferred/tax-free compounding is available.

Any federal income tax due on the Roth conversion (whether from a fully taxable retirement account or a non-deductible IRA) can be paid over a two-year period (2011 and 2012). Further, any tax owed with respect to the Roth conversion should, ideally, be paid with non-IRA funds in order to maximize the tax deferral and the growth of the Roth IRAs. Finally, please note that many states, including Illinois, do not tax IRA and retirement account distributions (even if prior to age 59 ½). Accordingly, there should be no state income tax ramifications in such states concerning the Roth conversion.

IV. Year-End Portfolio Review/Planning

A. Close Out Unrealized Loss Positions Prior to Year-End - Year-end is a time for “portfolio loss harvesting”. That is, to close out any unrealized losses in your portfolio, in order to offset 2009 realized capital gains, plus up to $3,000 of non-capital gain income.

B. Avoid Wash Sale Rule - Any securities on which losses are realized cannot be repurchased within thirty days without triggering the wash sale rule, which, if applicable, would then defer such realized losses. (NOTE: With the proliferation of exchange traded funds, one should be able to purchase an ETF with comparable market exposure as a substitute of the sold security position, without violating the wash sale rule).

C. Mutual Fund Dividend Trap – Beware of any mutual fund dividends paid in December on recently purchased mutual funds. Often, these dividends relate to gains realized by the fund prior to one's ownership of the fund. Hence, you are left with taxable income and/or capital gains from the dividend distribution, but have no true economic income due to the drop in the net asset value of the fund attributable to the dividend payment. Affected taxpayers who find themselves in this position should consider selling out the mutual fund position prior to year-end in order to offset the dividend distribution income.

V. Traditional Year-End Tax Planning Ideas

A. Roth 401(k) Plans – Many higher income taxpayers have been unable to contribute to Roth IRAs in prior years due to the applicable adjusted gross income limitation. However, participants in Roth 401(k) plans (including one-person 401(k) plans) can contribute up to 100% of their earned income (limited to $16,500 for 2009, or $22,000, if age 50+) without regard to their adjusted gross income.

NOTE: In order to avail yourself of this Roth contribution for 2009, new 401(k) plans must be established, or existing plans must be amended to allow for the Roth feature, by December 31, 2009.

B. Nondeductible IRA Contributions – As discussed above, with the new Roth conversion rules which take effect in 2010, non-deductible IRA contributions for 2009 and 2010 take on the look and feel of Roth contributions. That is, one can currently fund their 2009 non-deductible IRA, and then in early January 2010, make a similar non-deductible IRA contribution for 2010, and then immediately convert the account to a Roth IRA. As stated above, any tax due would only be payable on the earnings from these non-deductible contributions and then the tax can be paid over a two-year period.

C. Roth IRAs for Children – An idea of a “gift that keeps on giving” is the establishment/funding of Roth IRAs, by parents or grandparents, for children with qualifying earned income. Contributions can be made for up to 100% of the child's earned income (limited to $5,000 for 2009). The potential 30-40+ year tax-deferred compounding of the annual gifts and ultimate tax-free distributions from the Roth IRA can indeed be staggering and create a lifetime legacy account.

D. Illinois 529 College Savings Plans - Another gift that keeps on giving, and in this case gives a little back to the donor, is a contribution on behalf of a child or grandchild to one of the Illinois 529 College Savings Plans. Contributors to these plans can avail themselves of an Illinois income tax deduction of up to $20,000 (in the case of married-filing-joint) for contributions made to the Illinois 529 plans for one or more beneficiaries. This deduction on the Illinois tax return of the donor is available without regard to one’s adjusted gross income level.

Like all 529 plans, the earnings of the plan are tax-deferred until withdrawn and even then, are tax-free to the extent expended for qualifying higher education costs.

E. Maximizing Retirement Plan Contributions Maximizing retirement plan contributions is probably one of the most desirable tax saving/deferral opportunities which all taxpayers should strive to achieve (especially if they are contemplating the potential 2010 conversion of their taxable retirement accounts to Roth IRAs). Whether it is in the form of an upfront deduction, or the tax-deferred compounding, the growth of one’s retirement plan assets generally contributes significantly to one’s increased net worth. Note, however, for the first time in a long time, there were no increases in the contribution limitation from 2009 to 2010. This is due largely in part to the low interest rate and inflationary environment we experienced this past year. Accordingly, current limitations, as compared to recent years, are as follows:

Maximum Compensation $245,000 (2010) $245,000 (2009) $230,000 (2008) Max Profit Sharing/IRA-SEP % 25% (2010) 25% (2009) 25% (2008) Max Profit Sharing/IRA-SEP $ 49,000 (2010) 49,000 (2009) 46,000 (2008) Max §401(k) Contribution 16,500 (2010) 16,500 (2009) 15,500 (2008) §401(k) Age 50 “Catch Up” 5,500 (2010) 5,500 (2009) 5,000 (2008) IRA Contributions 5,000 (2010) 5,000 (2009) 5,000 (2008) IRA “Catch Up” Contributions 1,000 (2010) 1,000 (2009) 1,000 (2008)

Summary

We strongly recommend doing a pro-forma projection of your 2009 taxable income prior to year-end, in order to identify which tax saving opportunities might be applicable to your individual tax situation. In this regard, please call our office for any assistance you may require concerning this matter.

In closing, all of us at JKFA wish you and your family a very Happy Holiday Season and a healthy and prosperous New Year.

We thank you for your past patronage and look forward to being of continued service to you in the future.

Very truly yours,

John K. Flaherty & Associates, Ltd.

The IRS has released much-anticipated temporary and proposed regulations on the capitalization of costs incurred for tangible property. They impact how virtually any business writes off costs that repair, maintain, improve or replace any tangible property used in the business, from office furniture to roof repairs to photocopy maintenance and everything in between. They apply immediately, to tax years beginning on or after January 1, 2012.

The IRS has released much-anticipated temporary and proposed regulations on the capitalization of costs incurred for tangible property. They impact how virtually any business writes off costs that repair, maintain, improve or replace any tangible property used in the business, from office furniture to roof repairs to photocopy maintenance and everything in between. They apply immediately, to tax years beginning on or after January 1, 2012.

These so-called “repair regulations” are broad and comprehensive. They apply not only to repairs, but to the capitalization of amounts paid to acquire, produce or improve tangible property. They are intended to clarify and expand existing regulations, set out some bright-line tests, and provide some safe harbors for deducting payments.

The regulations are an ambitious effort to address capitalization of specific expenses associated with tangible property. The regulations affect manufacturers, wholesalers, distributors, and retailers—everyone who uses tangible property, whether the property is owned or leased. The rules provide a more defined framework for determining capital expenditures.

Most taxpayers will have to make changes to their method of accounting to comply with the temporary regulations and will need to file Form 3115. Taxpayers who filed for a change of accounting method following the issuance of the 2008 proposed regulations will probably have to change their accounting method again.

The IRS has promised to issue two revenue procedures that will provide transition rules for taxpayers changing their method of accounting, including the granting of automatic consent to make the change. The regulations require taxpayers to make a Code Sec. 481(a) adjustment; this means that taxpayers will have to apply the regulations to costs incurred both prior to and after the effective date of the regulations.

The new regulations provide rules for materials and supplies that can be deducted, rather than capitalized. The rules provide several methods of accounting for rotable and temporary spare parts, and allow taxpayers to apply a de minimis rule so that they can deduct materials and supplies when they are purchased, not when they are consumed.

Costs to acquire, produce or improve tangible property must be capitalized. The regulations address moving and reinstallation costs, work performed prior to placing property into service, and transaction costs. Generally, costs of simply removing property can be deducted, but costs of moving and then reinstalling property may have to be capitalized.

To determine whether a cost incurred for property is an improvement, it is necessary to determine the unit of property. Generally, the larger the unit of property, the easier it is to deduct expenses, rather than have to capitalize them. The regulations provide detailed rules for determining the unit of property for buildings and for non-building tangible property. For buildings, the IRS identified eight component systems as separate units of property, requiring more costs to be capitalized. However, the new rules also provide for deducting the costs of property taken out of service, by treating the retirement as a disposition.

The new regulations require virtually every business to review how repairs, maintenance, improvements and replacements are handled for tax purposes, with both mandatory and optional adjustments made to past treatment as appropriate.

Please feel free to call this office for a more targeted explanation of how these new regulations impact your business operations.

The fate of the employee-side payroll tax cut along with a host of tax extenders and other expired provisions could be decided in coming weeks. A conference committee of House and Senate members is negotiating a full-year extension of the payroll tax cut and could add some or all of the tax extenders to a final package. Lawmakers also could extend the payroll tax cut without acting on any tax incentives.

The fate of the employee-side payroll tax cut along with a host of tax extenders and other expired provisions could be decided in coming weeks. A conference committee of House and Senate members is negotiating a full-year extension of the payroll tax cut and could add some or all of the tax extenders to a final package. Lawmakers also could extend the payroll tax cut without acting on any tax incentives.

Payroll tax cut

The Temporary Payroll Tax Cut Continuation Act of 2011 extended the employee-side OASDI tax cut through the end of February 2012. The employee-share of OASDI taxes is 4.2 percent for the two-month period, rather than 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent for the two month period. Self-employed individuals also benefit from a two percentage point reduction in OASDI taxes.

Unless extended, the employee-share of OASDI taxes is scheduled to revert to 6.2 percent after February 29, 2012. The White House and the leaders of the two parties in Congress agree that the payroll tax cut should be extended a full-year. They disagree, however, how to pay for the extension; even if it should be paid for at all.

Congress could extend the two-month payroll tax cut through the end of 2012 without paying for it. The 2011 payroll tax cut was unfunded. Congress appropriated to the Social Security trust funds amounts equal to the reduction in payroll tax revenues. The 2011 payroll tax cut was estimated by the Congressional Budget Office cost approximately $111 billion. Extending it through the end of 2012 is estimated to cost just as much if not more.

House Republicans reportedly have proposed a number of revenue raisers to offset the cost of extending the payroll tax cut through the end of 2012. One GOP proposal would extend the current pay freeze for employees of the federal government. Another GOP proposal would require higher-income individuals to pay increased Medicare premiums.

One possible revenue raiser, increasingly under discussion by Democrats, is a change in the taxation of so-called carried interest. Current law generally taxes carried interest as capital gains and not as ordinary income. Past efforts to change the tax treatment of carried interest have failed to pass Congress.

Extenders

The so-called tax extenders, popular but temporary tax provisions, expired at the end of 2011. Many taxpayers are surprised to learn that their particular tax break, whether it be the state or local sales tax deduction, the teachers’ classroom expense deduction, or the research tax credit, are temporary. The extenders have been routinely revived many times in the past. This year, however, could be different. Faced with record federal budget deficits, lawmakers may decide to extend only some of the expired provisions.

President Obama’s FY 2013 proposals

President Obama is expected to release his fiscal year (FY) 2013 federal budget proposals in early February, which will reignite debate over the Bush-era tax cuts. President Obama is expected to urge Congress to allow the Bush-era tax cuts to expire after 2012 for higher-income taxpayers, which President Obama defines as individuals earning more than $200,000 or families earning more than $250,000. In recent weeks, there has been speculation that President Obama may revisit those definitions in his FY 2013 budget, possibly raising the amounts.

Few Capitol Hill observers expect Congress to take any action on the Bush-era tax cuts before the November elections. Instead, Congress may take up some of President Obama’s other proposals. As in past budgets, President Obama will likely propose to extend some energy tax breaks for individuals and businesses, extend tax incentives for education and provide some targeted-tax breaks to businesses. President Obama has also promised to introduce proposals to encourage U.S. companies to “insource” jobs at home.

On some issues, such as energy and education, lawmakers may find common ground but negotiations are likely to go down to the wire. Our office will keep you posted of developments.

If you have any questions about the payroll tax cut, tax extenders or the various tax proposals under discussion, please contact our office.

The IRS reopened its offshore voluntary disclosure program in early 2012 in response to what the government described as strong interest among taxpayers. The reopened program, the third of its type in recent years, encourages taxpayers with unreported foreign accounts to make full disclosures in exchange for a reduced penalty framework. Like its predecessors, the terms and conditions of the reopened program are very complex. The IRS has promised to provide more details. In the meantime, the prior offshore disclosure programs are guides to how the IRS intends to implement the third, reopened program.

The IRS reopened its offshore voluntary disclosure program in early 2012 in response to what the government described as strong interest among taxpayers. The reopened program, the third of its type in recent years, encourages taxpayers with unreported foreign accounts to make full disclosures in exchange for a reduced penalty framework. Like its predecessors, the terms and conditions of the reopened program are very complex. The IRS has promised to provide more details. In the meantime, the prior offshore disclosure programs are guides to how the IRS intends to implement the third, reopened program.

Previous disclosure programs

The IRS launched two previous offshore disclosure initiatives: one in 2009 and another in 2011. Both programs offered reduced penalties in exchange for full disclosure. In early 2012, the IRS reported it received 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. The government has collected over $4.4 billion from the 2009 and 2011 programs. The IRS predicted it will collect more revenue as it continues to work cases.

Reopened program

The reopened program operates very similarly to the 2009 and 2011 programs but with some key differences. The previous programs were temporary. The 2011 program ended in mid-September 2011. The reopened program has no set end date. The IRS cautioned, however, that it could close the program at some future date. The decision to end the program is solely at the discretion of the IRS.

The reopened program requires taxpayers to file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as pay accuracy-related and/or delinquency penalties. Additionally, taxpayers must pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. In comparison, the highest penalty in the 2011 program was 25 percent. IRS officials have said that the penalty was increased because the agency does not want to reward taxpayers who did not participate in the 2009 or 2011 disclosure programs because they anticipated that a future penalty would be lower.

In limited circumstances, taxpayers may qualify for a 12.5 percent penalty or a five percent penalty. Generally, taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year may qualify for the 12.5 percent penalty.

The requirements for the five percent penalty are very narrow. The IRS has explained that taxpayers must meet four conditions: (1) The taxpayer did not open or cause the account to be opened; (2) the taxpayer exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account holder information such as a change in address, contact person, or email address; (3) except for a withdrawal closing the account and transferring the funds to an account in the United States, the taxpayer did not withdraw more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (4) the taxpayer can show that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation).

The penalty amounts in the reopened program are not set in stone, the IRS cautioned. It may eventually increase penalties in the program for all or some taxpayers or defined classes of taxpayers.

Quiet disclosures

One goal of the three programs is to caution taxpayers against so-called “quiet disclosures.” A quiet disclosure occurs when a taxpayer files an amended return and pays any tax delinquency without making a formal voluntary disclosure. The IRS warned taxpayers making quiet disclosures that they risked being sanctioned to the fullest extent allowed by law.

Critics

The offshore disclosure programs were not without their critics. The National Taxpayer Advocate recently told Congress that the IRS should streamline what is a very complicated process. The National Taxpayer Advocate also reported that IRS examiners were assuming that all violations were willful unless a taxpayer presented evidence to the contrary. It is possible that the IRS may revisit some of the terms and conditions of the reopened program in light of the National Taxpayer Advocate’s report.

If you have any questions about the reopened offshore voluntary disclosure program, please contact our office.

Taxpayers with children should be aware of the numerous tax breaks for which they may qualify. Among them are: the dependency exemption, child tax credit, child care credit, and adoption credit. As they get older, education tax credits for higher education may be available; as is a new tax code requirement for employer-sponsored health care to cover young adults up to age 26. Employers of parents with young children may also qualify for the child care assistance credit.

Taxpayers with children should be aware of the numerous tax breaks for which they may qualify. Among them are: the dependency exemption, child tax credit, child care credit, and adoption credit. As they get older, education tax credits for higher education may be available; as is a new tax code requirement for employer-sponsored health care to cover young adults up to age 26. Employers of parents with young children may also qualify for the child care assistance credit.

Dependency Exemption

In addition to the personal exemption an individual taxpayer may take for him or herself to reduce taxable income (Line 42 on Form 1040), that taxpayer may also take an exemption for each qualifying dependent who has lived with the taxpayer for more than half of the tax year. A dependent may be a natural child, step-child, step-sibling, half-sibling, adopted child, eligible foster child, or grandchild, and generally must be under age 19, a full-time student under age 24, or have special needs. The amount of the exemption is the same as the taxpayer’s personal exemption, $3,700 for the 2011 tax year and $3,800 for the 2012 tax year.

Child Tax Credit

Parents of children who are under age 17 at the end of the tax year may qualify for a refundable $1,000 tax credit. The credit is a dollar-for-dollar reduction of tax liability, and may be listed on Line 51 of Form 1040. For every $1,000 of adjusted gross income above the threshold limit ($110,000 for married joint filers; $75,000 for single filers), the amount of the credit decreases by $50.

Child and Dependent Care Credit

If a taxpayer must pay for childcare for a child under age 13 in order to pursue or maintain gainful employment, he or she may claim up to $3,000 of his or her eligible expenses for dependent care. If one parent stays home full-time, however, no child care costs are eligible for the credit.

Adoption Credit

Taxpayers who have incurred qualified adoption expenses in 2011 may claim either a $13,360 credit against tax owed or a $13,360 income exclusion if the taxpayer has received payments or reimbursements from his or her employer for adoption expenses. For 2012, the amount of the credit will decrease to $12,650, and in 2013 to $5,000.

Higher Education Credits

There are two education-related credits available for 2012: the American Opportunity credit and the lifetime learning credit. The American Opportunity credit amount is the sum of 100 percent of the first $2,000 of qualified tuition and related expenses plus 25 percent of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is available for the first four years of a student's post-secondary education. The credit amount phases out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). The lifetime learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition per family. The phaseout for 2012 ranges from $52,000 to $62,000 ($104,000 to $124,000 for joint filers). Parents also find tax relief in saving for college though Coverdell accounts, section 529 plans and specified U.S.. savings bonds.

Extended Health Care Coverage

Effective since September 23, 2010, the new health care law requires plans to provide coverage for children until they attain age 26. Further, effective on or after March 30, 2010, children under the age of 27 are considered dependents of a taxpayer for purposes of the general exclusion from income for reimbursements for medical care expenses of an employee, spouse, and dependents under an employer-provided accident or health plan. Therefore, a plan must provide coverage to a child who is still a dependent up to age 26; but can do so up to age 27 without income tax consequences. A child includes a son, daughter, stepson, or stepdaughter of the taxpayer; a foster child placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction; and a legally adopted child of the taxpayer or a child who has been lawfully placed with the taxpayer for legal adoption.

Child Care Assistance Credit (for businesses)

Employers may take up to $150,000 of the eligible costs of providing employees with child care assistance as tax credit. These costs may include a portion of the costs of acquiring, constructing, improving, and operating a child care facility.

If you have any questions about these provisions and how they may benefit you, please contact our office.

The Treasury Department is authorized to offset a taxpayer’s tax refund to satisfy certain debts. A spouse who believes that his or her portion of the refund should not be used to offset the debt that the other spouse owes may request a refund from the IRS.

The Treasury Department is authorized to offset a taxpayer’s tax refund to satisfy certain debts. A spouse who believes that his or her portion of the refund should not be used to offset the debt that the other spouse owes may request a refund from the IRS.

Offset

If an individual owes money to the federal government because of a delinquent debt, the Treasury Department’s Financial Management Service (FMS) can offset that individual's tax refund (and certain other federal payments) to satisfy the debt. The debtor will be notified in advance of the offset.

A taxpayer’s refund may be reduced by FMS and offset to pay:

• Past-due child support
• Federal agency non-tax debts
• State income tax obligations, or
• Certain unemployment compensation debts owed a state.

FMS advises taxpayers by written notice of an offset. FMS has explained that the notice will reflect the original refund amount, the taxpayer’s offset amount, the agency receiving the payment, and the address and telephone number of the agency. FMS will notify the IRS of the amount taken from your refund.

Form 8379

If a taxpayer filed a joint return and is not responsible for the debt of his or her spouse, the taxpayer may request his or her portion of the refund by filing Form 8379, Injured Spouse Allocation, with the IRS. Form 8379 may be filed with the original return or by itself after the taxpayer is aware of the offset.

The IRS has instructed taxpayers filing Form 8379 by itself to attach a copy of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing federal income tax withholding to Form 8379. Failure to attach these items may result in a delay in processing by the IRS.

The IRS has reported on its website that it generally processes Forms 8379 that are filed after a joint return has been filed in approximately eight weeks. The timeframe for processing a Form 8379 that is attached to a joint return is approximately 11 weeks (14 weeks if the joint return is filed on paper).

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of February 2012.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of February 2012.

February 1

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 25–27.

February 3

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 28–31.

February 8

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 1–3.

February 10

Employees who work for tips. Employees who received $20 or more in tips during November must report them to their employer using Form 4070.

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 4–7.

February 15

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 8–10.

Monthly depositors. Monthly depositors must deposit employment taxes for payments in January.

February 17

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 11–14.

February 23

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 15–17.

February 24

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 18–21.

February 29

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 22–24.

March 2

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 25–28.

March 7

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 29–March 2.