St. Paul, MN - CPA Firm

September 15, 2010: 3^rd Quarter Estimated Tax payments are due for Individuals required to pay estimated taxes.

September 15, 2010: Partnership and Corporate Income tax returns for 2009 that are on Extension are due.

October 15, 2010: Individual Income Tax returns on extension are due.

The 2009 data book published by the IRS provides valuable information about how many tax returns IRS examines and what categories of returns IRS is focusing its resources on. The report describes activities conducted by the IRS from Oct. 1, 2008, to Sept. 30, 2009.

Access the full report http://www.irs.gov/taxstats/article/0,,id=102174,00.html

INDIVIDUAL TAX RETURNS

1,425,888 of the 138,788,744 total individual income tax returns with a filing requirement were audited. This is roughly 1% which was the same percentage as the previous year.

36 % of the total number of individual income tax returns audited in FY 2009 was of returns with an earned income tax credit (EITC) claim, roughly the same as for FY 2008.

Only 23% of the individual audits were conducted by revenue agents, tax compliance officers, and tax examiners; the bulk of the audits (about 77%) were correspondence audits mailed to taxpayers.

For individuals with a business showing total gross receipts of $100,000 to $200,000, 4.2% of returns were audited in FY 2009, versus 3.8% in FY 2008. For gross receipts of $200,000 or more, 3.2% of returns were audited in FY 2009, versus 3.1% in FY 2008.

For returns showing total positive income of $200,000 to $1 million, 2.3% of returns not showing business activity were audited, and 3.1% of returns showing business activity were audited; for FY 2008, these percentages were 2.6% and 2.8% respectively.

For FY 2009, the audit rate for returns with total positive income of $1 million or more was 6.4%, versus 5.6% in FY 2008.

BUSINESS TAX RETURNS

For all corporate returns other than Form 1120S, 1.3% of the returns were audited, the same percentage as for the year before.

For small corporations with total assets of: $250,000 to $1 million, 1.3%; $1–$5 million, 1.8%; and $5–10 million, 2.7%. For FY 2008, the percentages were, respectively, 1.4%, 2%, and 3.1%.

For large corporations, those with total assets of $10 million or more, the overall audit rate was 14.5%, down from 15.3% for FY 2008.

For partnership and S corporation returns, the audit rate was .4%, the same as for the year before.

OTHER INFORMATION

Math error notices: There were 13.48 million math error notices that IRS sent out relating to the 2008 return. 74.4% of these notices were attributable to the recovery rebate credit.

Penalties: In FY 2009, IRS assessed 26.4 million civil penalties against individual taxpayers totaling almost $15 million dollars. 54.71% of these penalties were for failure to pay, 28.67% for underpayment of estimated tax, and 14.42% for delinquency. On the business side, there were a total of 970,098 civil penalty assessments totaling $1.85 million dollars. 55.8% of these assessments were for either failure to pay or underpayment of estimated tax.

Offers in compromise: In FY 2009 52,000 offers in compromise were received by IRS, and 11,000 (26%) were accepted. These figures reversed declines in the two preceding years.

Criminal cases: IRS initiated 4,121 criminal investigations in FY 2009. There were 2,570 referrals for prosecution and 2,105 convictions. Of those sentenced, 81.2% were incarcerated. In comparison, in FY 2008, IRS initiated 3,749 criminal investigations and there were 2,785 referrals for prosecution. Of those sentenced, 80.9% were incarcerated.

A new law requires those who are currently required to file June accelerated payments of sales and use tax must also pay a portion of each month’s tax liability early, beginning September 2010. If your company’s sales and use tax liability for the fiscal year ended June 30, 2009 is $120,000 or more you are required to follow the new rules for making payments early.

One of two payment methods must be used for those affected by the accelerated payment requirement and the method selected must be used for all future payments.

Method 1: Under Method #1, the majority of the sales tax (90%) must be paid 6 days early.  On or before the 14^th day of the month following the month the taxes are collected, a vendor must remit 90% of the estimated liability for the prior month. The due date of the sales and use tax return continues to be the 20^th of the month, which has not changed. The balance of the taxes due must be paid on or before the due date.

Method 2:   Under Method #2, a prepayment of 67% the current month sales tax is due, along with the full payment of the prior month’s liability.  On or before the 20^th day of the month following the month the taxes are collected, a vendor must file and pay their sales tax, as usual AND also remit 67% of the liability for the month as a prepayment for the current month. For example, under this Method, on 9/20/10, the August return and payment are due along with 67% of September’s sales tax.  If your August sales tax liability was $100, you would pay in $167, which is $100 for August and $67 as the September prepayment.

If you do not meet the payment deadline of September 14, 2010 for Method #1, you are required to use Method #2.

There is a 10% penalty for underpayment and the requirement for making early payments continues until the state’s cash flow account and the budget reserve account reach the amounts set by statute. The Minnesota Department of Revenue will notify you when this happens.

2010 Sales and use tax law change newsletter

On June 30, Congress passed the Homebuyer Assistance Improvement Act of 2010. The Act provides first-time homebuyer credit relief to taxpayers who couldn’t meet the June 30, 2010 closing date.

This extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date provides tax relief for those who couldn’t close on time because of backlogs at lenders and federal programs involved in homebuyer loans.

The Patient Protection and Affordable Care Act authorized a new income tax credit to encourage small businesses employing low and moderate income workers to offer health insurance coverage (IRC Sec. 45R).

 The credit generally equals 35% of the lesser of the (1) employer’s contributions during the tax year to a health arrangement to purchase qualifying health coverage, or (2) contributions the employer would have made during the tax year if each employee had enrolled in a plan with a premium equal to the average premium for the small group market in the state where the employer is offering coverage.

The credit percentage that can be claimed varies with the number of employees and average wages and begins in 2010. An eligible small employer generally is an employer with no more than 25 full-time equivalent employees (FTE’s) employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000.

 The number of an employer’s FTEs is determined by dividing the total hours for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by 2,080.

The amount of average annual wages is determined by first dividing the total wages paid by the employer to employees during the employer’s tax year by the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000. “Wages” means wages as defined for FICA purposes (without regard to the wage base limitation).

If the number of FTEs exceeds 10 or if average annual wages exceed $25,000, the amount of the credit is reduced as follows.

• If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction having as the numerator the number of FTEs in excess of 10, and having 15 as the denominator.
• If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction having as the numerator the amount by which average annual wages exceed $25,000, and having $25,000 as the denominator.