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1040 x Publication 80 - Introductory Material Table of Contents Future Developments What's New Reminders Calendar Future Developments For the latest information about developments related to Publication 80 (Circular SS), such as legislation enacted after it was published, go to www. 1040 x irs. 1040 x gov/pub80. 1040 x What's New Social security and Medicare tax for 2014. 1040 x The social security tax rate is 6. 1040 x 2% each for the employee and employer, unchanged from 2013. 1040 x The social security wage base limit is $117,000. 1040 x The Medicare tax rate is 1. 1040 x 45% each for the employee and employer, unchanged from 2013. 1040 x There is no wage base limit for Medicare tax. 1040 x Social security and Medicare taxes apply to the wages of household workers you pay $1,900 or more in cash or an equivalent form of compensation. 1040 x Social security and Medicare taxes apply to election workers who are paid $1,600 or more in cash or an equivalent form of compensation. 1040 x Change of responsible party. 1040 x . 1040 x Beginning January 1, 2014, any entity with an employer identification number (EIN) must file Form 8822-B, Change of Address or Responsible Party—Business, to report the latest change to its responsible party. 1040 x Form 8822-B must be filed within 60 days of the change. 1040 x If the change in the identity of your responsible party occurred before 2014, and you have not previously notified the IRS of the change, file Form 8822-B before March 1, 2014, reporting only the most recent change. 1040 x For a definition of “responsible party”, see the Form 8822-B instructions. 1040 x Same-sex marriage. 1040 x For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. 1040 x For more information, see Revenue Ruling 2013-17, 2013-38 I. 1040 x R. 1040 x B. 1040 x 201, available at www. 1040 x irs. 1040 x gov/irb/2013-38_IRB/ar07. 1040 x html. 1040 x Notice 2013-61 provides special administrative procedures for employers to make claims for refund or adjustments of overpayments of social security and Medicare taxes with respect to certain same-sex spouse benefits before expiration of the period of limitations. 1040 x Notice 2013-61, 2013-44 I. 1040 x R. 1040 x B. 1040 x 432, is available at www. 1040 x irs. 1040 x gov/irb/2013-44_IRB/ar10. 1040 x html. 1040 x Reminders Additional Medicare Tax withholding. 1040 x In addition to withholding Medicare tax at 1. 1040 x 45%, you must withhold a 0. 1040 x 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. 1040 x You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. 1040 x Additional Medicare Tax is only imposed on the employee. 1040 x There is no employer share of Additional Medicare Tax. 1040 x All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. 1040 x For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Employment and Payments , in section 12. 1040 x For more information on Additional Medicare Tax, visit IRS. 1040 x gov and enter “Additional Medicare Tax” in the search box. 1040 x Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans. 1040 x The work opportunity tax credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. 1040 x Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. 1040 x For more information, visit IRS. 1040 x gov and enter “work opportunity tax credit” in the search box. 1040 x Outsourcing payroll duties. 1040 x Employers are responsible to ensure that tax returns are filed and deposits and payments are made, even if the employer contracts with a third party to perform these acts. 1040 x The employer remains responsible if the third party fails to perform any required action. 1040 x If you choose to outsource any of your payroll and related tax duties (that is, withholding, reporting, and paying over social security, Medicare, FUTA, and income taxes) to a third-party payer such as a payroll service provider or reporting agent, visit IRS. 1040 x gov and enter “outsourcing payroll duties” in the search box for helpful information on this topic. 1040 x Residents of the Philippines working in the Commonwealth of the Northern Mariana Islands (CNMI). 1040 x The IRS will not assert that an employer has understated liability for social security and Medicare taxes because they failed to treat services performed before January 1, 2015, in the CNMI by a resident of the Philippines as employment as defined under Internal Revenue Code section 3121(b). 1040 x For more information, see Announcement 2012-43, 2012-51 I. 1040 x R. 1040 x B. 1040 x 723, available at www. 1040 x irs. 1040 x gov/irb/2012-51_IRB/ar15. 1040 x html. 1040 x CNMI government employees now subject to social security and Medicare taxes. 1040 x Beginning in the fourth calendar quarter of 2012, CNMI government employees are subject to social security and Medicare taxes. 1040 x COBRA premium assistance credit. 1040 x The credit for COBRA premium assistance payments applies to premiums paid for employees involuntarily terminated between September 1, 2008 and May 31, 2010, and to premiums paid for up to 15 months. 1040 x See COBRA premium assistance credit in Publication 15 (Circular E), Employer's Tax Guide. 1040 x You can get Publication 15 (Circular E) at IRS. 1040 x gov. 1040 x You must receive written notice from the IRS to file Form 944. 1040 x If you have been filing Forms 941-SS and believe your employment taxes for the calendar year will be $1,000 or less, and you would like to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Forms 941-SS, you must contact the IRS to request to file Form 944. 1040 x You must receive written notice from the IRS to file Form 944 instead of Forms 941-SS before you may file this form. 1040 x For more information on requesting to file Form 944 visit IRS. 1040 x gov and enter “file employment taxes annually” in the search box. 1040 x Federal employers in the CNMI. 1040 x The U. 1040 x S. 1040 x Treasury Department and the CNMI Division of Revenue and Taxation entered into an agreement under 5 USC 5517 in December 2006. 1040 x Under this agreement, all federal employers (including the Department of Defense) are required to withhold CNMI income taxes (rather than federal income taxes) and deposit the CNMI taxes with the CNMI Treasury for employees who are subject to CNMI taxes and whose regular place of federal employment is in the CNMI. 1040 x Federal employers are also required to file quarterly and annual reports with the CNMI Division of Revenue and Taxation. 1040 x For questions, contact the CNMI Division of Revenue and Taxation. 1040 x Change of address. 1040 x Use Form 8822-B to notify the IRS of an address change. 1040 x Do not mail Form 8822-B with your employment tax return. 1040 x Federal tax deposits must be made by electronic funds transfer. 1040 x You must use electronic funds transfer to make all federal tax deposits. 1040 x Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System (EFTPS). 1040 x If you do not want to use EFTPS, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf. 1040 x Also, you may arrange for your financial institution to initiate a same-day wire payment on your behalf. 1040 x EFTPS is a free service provided by the Department of Treasury. 1040 x Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee. 1040 x For more information on making federal tax deposits, see How To Deposit in section 8. 1040 x For more information about EFTPS or to enroll in EFTPS, visit the EFTPS website at www. 1040 x eftps. 1040 x gov or call 1-800-555-4477 (U. 1040 x S. 1040 x Virgin Islands only) or 303-967-5916 (toll call) or 1-800-733-4829 (TDD). 1040 x Additional information about EFTPS is also available in Publication 966, Electronic Federal Tax Payment System: A Guide To Getting Started. 1040 x Electronic filing and payment. 1040 x Using electronic options can make filing a return and paying your federal tax easier. 1040 x Use the Electronic Federal Tax Payment System (EFTPS) to make deposits or pay in full, whether you rely on a tax professional or prepare your own taxes. 1040 x You can use IRS e-file to file certain returns. 1040 x If there is a balance due on the return, you can e-file and e-pay in a single step by authorizing an electronic funds withdrawal (EFW) from your bank account while e-filing. 1040 x Do not use EFW to pay taxes that are required to be deposited. 1040 x Visit the IRS website at www. 1040 x irs. 1040 x gov/efile for more information on filing electronically. 1040 x For more information on paying your taxes using EFW, visit the IRS website at www. 1040 x irs. 1040 x gov/e-pay. 1040 x A fee may be charged to file electronically. 1040 x For EFTPS, visit www. 1040 x eftps. 1040 x gov or call EFTPS Customer Service at 1-800-555-4477 (U. 1040 x S. 1040 x Virgin Islands only) or 303-967-5916 (toll call). 1040 x For electronic filing of Forms W-2AS, W-2CM, W-2GU, W-2VI, Wage and Tax Statements; W-3SS, Transmittal of Wage and Tax Statements; and W-2c, Corrected Wage and Tax Statement, visit www. 1040 x socialsecurity. 1040 x gov/employer. 1040 x If you are filing your tax return or paying your federal taxes electronically, a valid EIN is required. 1040 x If a valid EIN is not provided, the return or payment will not be processed. 1040 x This may result in penalties and delays in processing your return or payment. 1040 x Electronic option for filing Forms W-2AS, W-2CM, W-2GU, or W-2VI. 1040 x Employers in American Samoa, the CNMI, Guam, and the U. 1040 x S. 1040 x Virgin Islands can now use the Social Security Administration's W-2 Online service to create, save, print, and submit up to 50 Forms W-2AS, W-2CM, W-2GU, or W-2VI at a time over the Internet. 1040 x Form W-3SS will be generated automatically based on your Forms W-2AS, W-2CM, W-2GU, or W-2VI. 1040 x For more information, visit Social Security Administration's SSA website at www. 1040 x ssa. 1040 x gov/bso/bsowelcome. 1040 x htm. 1040 x Credit or debit card payments. 1040 x For information on paying your taxes with a credit or debit card, visit the IRS website at www. 1040 x irs. 1040 x gov/e-pay. 1040 x However, do not use credit or debit cards to make federal tax deposits. 1040 x Hiring new employees. 1040 x Record the number and name from each new employee's social security card. 1040 x An employee who does not have a social security card should apply for one on Form SS-5, Application for a Social Security Card. 1040 x See section 3. 1040 x Reporting discrepancies between Forms 941-SS (or Form 944) and Forms W-2. 1040 x File Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, to explain certain wage, tax, and payment discrepancies between Forms 941-SS (or Form 944), and Forms W-2 that were caused by acquisitions, statutory mergers, or consolidations. 1040 x For more information, see the Instructions for Schedule D (Form 941). 1040 x Apply for an employer identification number (EIN) online. 1040 x You can apply for an EIN online by visiting IRS. 1040 x gov and clicking on the Apply for an EIN Online link under Tools. 1040 x Dishonored payments. 1040 x Any form of payment that is dishonored and returned from a financial institution is subject to a penalty. 1040 x The penalty is $25 or 2% of the payment, whichever is more. 1040 x However, the penalty on dishonored payments of $24. 1040 x 99 or less is an amount equal to the payment. 1040 x For example, a dishonored payment of $18 is charged a penalty of $18. 1040 x Private delivery services. 1040 x You can use certain private delivery services designated by the IRS to send tax returns or payments. 1040 x The list includes only the following: DHL Express (DHL): DHL Same Day Service. 1040 x Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. 1040 x United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. 1040 x M. 1040 x , UPS Worldwide Express Plus, and UPS Worldwide Express. 1040 x For the IRS mailing address to use if you are using a private delivery service, go to IRS. 1040 x gov and enter “private delivery service” in the search box. 1040 x Your private delivery service can tell you how to get written proof of the mailing date. 1040 x Private delivery services cannot deliver items to P. 1040 x O. 1040 x boxes. 1040 x You must use the U. 1040 x S. 1040 x Postal Service to mail any item to an IRS P. 1040 x O. 1040 x box address. 1040 x Recordkeeping. 1040 x Keep all records of employment taxes for 4 years. 1040 x These should be available for IRS review. 1040 x There is no required format for such records, but they should include your EIN; the amounts and dates of all wage payments (including fringe benefits) and tips reported; the names, addresses, and occupations of employees receiving such payments and their social security numbers; copies of returns filed; dates of employment; and the dates and amounts of deposits made. 1040 x Farm employers must keep a record of the name, permanent address, and EIN of each crew leader. 1040 x See Farm Crew Leaders in section 2. 1040 x Disregarded entities and qualified subchapter S subsidiaries (QSubs). 1040 x Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes. 1040 x Eligible single-member entities that have not elected to be taxed as corporations must report and pay employment taxes on wages paid to their employees using the entities' own names and EINs. 1040 x See Regulations sections 1. 1040 x 1361-4(a)(7) and 301. 1040 x 7701-2(c)(2)(iv). 1040 x Photographs of missing children. 1040 x The IRS is a proud partner with the National Center for Missing and Exploited Children. 1040 x Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 1040 x You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. 1040 x Calendar If any date for filing a return, furnishing a form, or depositing taxes falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. 1040 x A statewide legal holiday delays a filing due date only if the IRS office where you are required to file is located in that state. 1040 x However, a statewide legal holiday does not delay the due date of federal tax deposits. 1040 x See Deposits on Business Days Only in section 8. 1040 x For any filing due date, you will meet the “file” or “furnish” requirement if the envelope containing the return or form is properly addressed, contains sufficient postage, and is postmarked by the U. 1040 x S. 1040 x Postal Service on or before the due date, or sent by an IRS-designated delivery service on or before the due date. 1040 x See Private delivery services under Reminders. 1040 x The following are important dates and responsibilities. 1040 x Also see Publication 509, Tax Calendars. 1040 x By January 31. 1040 x Furnish wage and tax statements to employees. 1040 x Give each employee a completed Form W-2AS, W-2CM, W-2GU, or W-2VI. 1040 x See section 10 for more information. 1040 x File Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, with the IRS. 1040 x If you deposited all Form 943 taxes when due, you have 10 additional calendar days to file. 1040 x U. 1040 x S. 1040 x Virgin Islands employers only must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, with the IRS. 1040 x Pay or deposit (if more than $500) any balance of the tax due. 1040 x If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. 1040 x File Form 944 with the IRS if you were notified by the IRS to file Form 944 instead of quarterly Forms 941-SS. 1040 x If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. 1040 x By February 28. 1040 x File paper wage and tax statements with the Social Security Administration (SSA). 1040 x File Copy A of Forms W-2AS, W-2CM, W-2GU, or W-2VI, and Form W-3SS with the Social Security Administration (SSA). 1040 x For electronically filed returns, see By March 31 next. 1040 x By March 31. 1040 x File electronic Forms W-2AS, W-2CM, W-2GU, or W-2VI with the SSA. 1040 x Visit the SSA's Reporting Instructions & Information webpage at www. 1040 x socialsecurity. 1040 x gov/employer for more information. 1040 x By April 30, July 31, October 31, and January 31. 1040 x File Form 941-SS with the IRS. 1040 x If you deposited the full amount of taxes when due, you have 10 additional calendar days to file. 1040 x Do not file Forms 941-SS for these quarters if you have been notified to file Form 944 and you did not request to file quarterly Forms 941-SS. 1040 x Deposit FUTA tax for the quarter (including any amount carried over from other quarters) if over $500. 1040 x If $500 or less, carry it over to the next quarter. 1040 x See section 11 for more information. 1040 x Prev Up Next Home More Online Publications
IRS Releases the Dirty Dozen Tax Scams for 2012
IR-2012-23, Feb. 16, 2012
WASHINGTON –– The Internal Revenue Service today issued its annual “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.
The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.
“Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” said IRS Commissioner Doug Shulman. “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.
The following is the Dirty Dozen tax scams for 2012:
Topping this year’s list Dirty Dozen list is identity theft. In response to growing identity theft concerns, the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.
Identity theft cases are among the most complex ones the IRS handles, but the agency is committed to working with taxpayers who have become victims of identity theft.
The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.
An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized.
The IRS has a robust screening process with measures in place to stop fraudulent returns. While the IRS is continuing to address tax-related identity theft aggressively, the agency is also seeing an increase in identity crimes, including more complex schemes. In 2011, the IRS protected more than $1.4 billion of taxpayer funds from getting into the wrong hands due to identity theft.
In January, the IRS announced the results of a massive, national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft. Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states.
Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.
Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.
If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to email@example.com.
It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from email scams.
Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to prepare and file their tax returns. Most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers.
Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.
In 2012, every paid preparer needs to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.
Signals to watch for when you are dealing with an unscrupulous return preparer would include that they:
- Do not sign the return or place a Preparer Tax identification Number on it.
- Do not give you a copy of your tax return.
- Promise larger than normal tax refunds.
- Charge a percentage of the refund amount as preparation fee.
- Require you to split the refund to pay the preparation fee.
- Add forms to the return you have never filed before.
- Encourage you to place false information on your return, such as false income, expenses and/or credits.
For advice on how to find a competent tax professional, see Tips for Choosing a Tax Preparer.
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases.
While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Since 2009, 30,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to bring their money back into the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.
At the beginning of this year, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.
The IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.
“Free Money” from the IRS & Tax Scams Involving Social Security
Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.
Scammers prey on low income individuals and the elderly. They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.
There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.
Beware. Intentional mistakes of this kind can result in a $5,000 penalty.
False/Inflated Income and Expenses
Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.
Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.
False Form 1099 Refund Claims
In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.
Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.
Falsely Claiming Zero Wages
Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.
Abuse of Charitable Organizations and Deductions
IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.
Disguised Corporate Ownership
Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.
These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.
Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.
IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.
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The 1040 X
1040 x 18. 1040 x Alimony Table of Contents IntroductionSpouse or former spouse. 1040 x Divorce or separation instrument. 1040 x Useful Items - You may want to see: General RulesMortgage payments. 1040 x Taxes and insurance. 1040 x Other payments to a third party. 1040 x Instruments Executed After 1984Payments to a third party. 1040 x Exception. 1040 x Substitute payments. 1040 x Specifically designated as child support. 1040 x Contingency relating to your child. 1040 x Clearly associated with a contingency. 1040 x How To Deduct Alimony Paid How To Report Alimony Received Recapture Rule Introduction This chapter discusses the rules that apply if you pay or receive alimony. 1040 x It covers the following topics. 1040 x What payments are alimony. 1040 x What payments are not alimony, such as child support. 1040 x How to deduct alimony you paid. 1040 x How to report alimony you received as income. 1040 x Whether you must recapture the tax benefits of alimony. 1040 x Recapture means adding back in your income all or part of a deduction you took in a prior year. 1040 x Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument. 1040 x It does not include voluntary payments that are not made under a divorce or separation instrument. 1040 x Alimony is deductible by the payer and must be included in the spouse's or former spouse's income. 1040 x Although this chapter is generally written for the payer of the alimony, the recipient can use the information to determine whether an amount received is alimony. 1040 x To be alimony, a payment must meet certain requirements. 1040 x Different requirements generally apply to payments under instruments executed after 1984 and to payments under instruments executed before 1985. 1040 x This chapter discusses the rules for payments under instruments executed after 1984. 1040 x If you need the rules for payments under pre-1985 instruments, get and keep a copy of the 2004 version of Publication 504. 1040 x That was the last year the information on pre-1985 instruments was included in Publication 504. 1040 x Use Table 18-1 in this chapter as a guide to determine whether certain payments are considered alimony. 1040 x Definitions. 1040 x The following definitions apply throughout this chapter. 1040 x Spouse or former spouse. 1040 x Unless otherwise stated, the term “spouse” includes former spouse. 1040 x Divorce or separation instrument. 1040 x The term “divorce or separation instrument” means: A decree of divorce or separate maintenance or a written instrument incident to that decree, A written separation agreement, or A decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. 1040 x This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement). 1040 x Useful Items - You may want to see: Publication 504 Divorced or Separated Individuals General Rules The following rules apply to alimony regardless of when the divorce or separation instrument was executed. 1040 x Payments not alimony. 1040 x Not all payments under a divorce or separation instrument are alimony. 1040 x Alimony does not include: Child support, Noncash property settlements, Payments that are your spouse's part of community income, as explained under Community Property in Publication 504, Payments to keep up the payer's property, or Use of the payer's property. 1040 x Payments to a third party. 1040 x Cash payments, checks, or money orders to a third party on behalf of your spouse under the terms of your divorce or separation instrument can be alimony, if they otherwise qualify. 1040 x These include payments for your spouse's medical expenses, housing costs (rent, utilities, etc. 1040 x ), taxes, tuition, etc. 1040 x The payments are treated as received by your spouse and then paid to the third party. 1040 x Life insurance premiums. 1040 x Alimony includes premiums you must pay under your divorce or separation instrument for insurance on your life to the extent your spouse owns the policy. 1040 x Payments for jointly-owned home. 1040 x If your divorce or separation instrument states that you must pay expenses for a home owned by you and your spouse, some of your payments may be alimony. 1040 x Mortgage payments. 1040 x If you must pay all the mortgage payments (principal and interest) on a jointly-owned home, and they otherwise qualify as alimony, you can deduct one-half of the total payments as alimony. 1040 x If you itemize deductions and the home is a qualified home, you can claim one-half of the interest in figuring your deductible interest. 1040 x Your spouse must report one-half of the payments as alimony received. 1040 x If your spouse itemizes deductions and the home is a qualified home, he or she can claim one-half of the interest on the mortgage in figuring deductible interest. 1040 x Taxes and insurance. 1040 x If you must pay all the real estate taxes or insurance on a home held as tenants in common, you can deduct one-half of these payments as alimony. 1040 x Your spouse must report one-half of these payments as alimony received. 1040 x If you and your spouse itemize deductions, you can each claim one-half of the real estate taxes and none of the home insurance. 1040 x If your home is held as tenants by the entirety or joint tenants, none of your payments for taxes or insurance are alimony. 1040 x But if you itemize deductions, you can claim all of the real estate taxes and none of the home insurance. 1040 x Other payments to a third party. 1040 x If you made other third-party payments, see Publication 504 to see whether any part of the payments qualifies as alimony. 1040 x Instruments Executed After 1984 The following rules for alimony apply to payments under divorce or separation instruments executed after 1984. 1040 x Exception for instruments executed before 1985. 1040 x There are two situations where the rules for instruments executed after 1984 apply to instruments executed before 1985. 1040 x A divorce or separation instrument executed before 1985 and then modified after 1984 to specify that the after-1984 rules will apply. 1040 x A temporary divorce or separation instrument executed before 1985 and incorporated into, or adopted by, a final decree executed after 1984 that: Changes the amount or period of payment, or Adds or deletes any contingency or condition. 1040 x For the rules for alimony payments under pre-1985 instruments not meeting these exceptions, get the 2004 version of Publication 504 at www. 1040 x irs. 1040 x gov/pub504. 1040 x Example 1. 1040 x In November 1984, you and your former spouse executed a written separation agreement. 1040 x In February 1985, a decree of divorce was substituted for the written separation agreement. 1040 x The decree of divorce did not change the terms for the alimony you pay your former spouse. 1040 x The decree of divorce is treated as executed before 1985. 1040 x Alimony payments under this decree are not subject to the rules for payments under instruments executed after 1984. 1040 x Example 2. 1040 x Assume the same facts as in Example 1 except that the decree of divorce changed the amount of the alimony. 1040 x In this example, the decree of divorce is not treated as executed before 1985. 1040 x The alimony payments are subject to the rules for payments under instruments executed after 1984. 1040 x Alimony requirements. 1040 x A payment to or for a spouse under a divorce or separation instrument is alimony if the spouses do not file a joint return with each other and all the following requirements are met. 1040 x The payment is in cash. 1040 x The instrument does not designate the payment as not alimony. 1040 x Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. 1040 x There is no liability to make any payment (in cash or property) after the death of the recipient spouse. 1040 x The payment is not treated as child support. 1040 x Each of these requirements is discussed below. 1040 x Cash payment requirement. 1040 x Only cash payments, including checks and money orders, qualify as alimony. 1040 x The following do not qualify as alimony. 1040 x Transfers of services or property (including a debt instrument of a third party or an annuity contract). 1040 x Execution of a debt instrument by the payer. 1040 x The use of the payer's property. 1040 x Payments to a third party. 1040 x Cash payments to a third party under the terms of your divorce or separation instrument can qualify as cash payments to your spouse. 1040 x See Payments to a third party under General Rules, earlier. 1040 x Also, cash payments made to a third party at the written request of your spouse may qualify as alimony if all the following requirements are met. 1040 x The payments are in lieu of payments of alimony directly to your spouse. 1040 x The written request states that both spouses intend the payments to be treated as alimony. 1040 x You receive the written request from your spouse before you file your return for the year you made the payments. 1040 x Payments designated as not alimony. 1040 x You and your spouse can designate that otherwise qualifying payments are not alimony. 1040 x You do this by including a provision in your divorce or separation instrument that states the payments are not deductible as alimony by you and are excludable from your spouse's income. 1040 x For this purpose, any instrument (written statement) signed by both of you that makes this designation and that refers to a previous written separation agreement is treated as a written separation agreement (and therefore a divorce or separation instrument). 1040 x If you are subject to temporary support orders, the designation must be made in the original or a later temporary support order. 1040 x Your spouse can exclude the payments from income only if he or she attaches a copy of the instrument designating them as not alimony to his or her return. 1040 x The copy must be attached each year the designation applies. 1040 x Spouses cannot be members of the same household. 1040 x Payments to your spouse while you are members of the same household are not alimony if you are legally separated under a decree of divorce or separate maintenance. 1040 x A home you formerly shared is considered one household, even if you physically separate yourselves in the home. 1040 x You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment. 1040 x Exception. 1040 x If you are not legally separated under a decree of divorce or separate maintenance, a payment under a written separation agreement, support decree, or other court order may qualify as alimony even if you are members of the same household when the payment is made. 1040 x Table 18-1. 1040 x Alimony Requirements (Instruments Executed After 1984) Payments ARE alimony if all of the following are true: Payments are NOT alimony if any of the following are true: Payments are required by a divorce or separation instrument. 1040 x Payments are not required by a divorce or separation instrument. 1040 x Payer and recipient spouse do not file a joint return with each other. 1040 x Payer and recipient spouse file a joint return with each other. 1040 x Payment is in cash (including checks or money orders). 1040 x Payment is: Not in cash, A noncash property settlement, Spouse's part of community income, or To keep up the payer's property. 1040 x Payment is not designated in the instrument as not alimony. 1040 x Payment is designated in the instrument as not alimony. 1040 x Spouses legally separated under a decree of divorce or separate maintenance are not members of the same household. 1040 x Spouses legally separated under a decree of divorce or separate maintenance are members of the same household. 1040 x Payments are not required after death of the recipient spouse. 1040 x Payments are required after death of the recipient spouse. 1040 x Payment is not treated as child support. 1040 x Payment is treated as child support. 1040 x These payments are deductible by the payer and includible in income by the recipient. 1040 x These payments are neither deductible by the payer nor includible in income by the recipient. 1040 x Liability for payments after death of recipient spouse. 1040 x If any part of payments you make must continue to be made for any period after your spouse's death, that part of your payments is not alimony, whether made before or after the death. 1040 x If all of the payments would continue, then none of the payments made before or after the death are alimony. 1040 x The divorce or separation instrument does not have to expressly state that the payments cease upon the death of your spouse if, for example, the liability for continued payments would end under state law. 1040 x Example. 1040 x You must pay your former spouse $10,000 in cash each year for 10 years. 1040 x Your divorce decree states that the payments will end upon your former spouse's death. 1040 x You must also pay your former spouse or your former spouse's estate $20,000 in cash each year for 10 years. 1040 x The death of your spouse would not terminate these payments under state law. 1040 x The $10,000 annual payments may qualify as alimony. 1040 x The $20,000 annual payments that do not end upon your former spouse's death are not alimony. 1040 x Substitute payments. 1040 x If you must make any payments in cash or property after your spouse's death as a substitute for continuing otherwise qualifying payments before the death, the otherwise qualifying payments are not alimony. 1040 x To the extent that your payments begin, accelerate, or increase because of the death of your spouse, otherwise qualifying payments you made may be treated as payments that were not alimony. 1040 x Whether or not such payments will be treated as not alimony depends on all the facts and circumstances. 1040 x Example 1. 1040 x Under your divorce decree, you must pay your former spouse $30,000 annually. 1040 x The payments will stop at the end of 6 years or upon your former spouse's death, if earlier. 1040 x Your former spouse has custody of your minor children. 1040 x The decree provides that if any child is still a minor at your spouse's death, you must pay $10,000 annually to a trust until the youngest child reaches the age of majority. 1040 x The trust income and corpus (principal) are to be used for your children's benefit. 1040 x These facts indicate that the payments to be made after your former spouse's death are a substitute for $10,000 of the $30,000 annual payments. 1040 x Of each of the $30,000 annual payments, $10,000 is not alimony. 1040 x Example 2. 1040 x Under your divorce decree, you must pay your former spouse $30,000 annually. 1040 x The payments will stop at the end of 15 years or upon your former spouse's death, if earlier. 1040 x The decree provides that if your former spouse dies before the end of the 15-year period, you must pay the estate the difference between $450,000 ($30,000 × 15) and the total amount paid up to that time. 1040 x For example, if your spouse dies at the end of the tenth year, you must pay the estate $150,000 ($450,000 − $300,000). 1040 x These facts indicate that the lump-sum payment to be made after your former spouse's death is a substitute for the full amount of the $30,000 annual payments. 1040 x None of the annual payments are alimony. 1040 x The result would be the same if the payment required at death were to be discounted by an appropriate interest factor to account for the prepayment. 1040 x Child support. 1040 x A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony. 1040 x The amount of child support may vary over time. 1040 x Child support payments are not deductible by the payer and are not taxable to the recipient. 1040 x Specifically designated as child support. 1040 x A payment will be treated as specifically designated as child support to the extent that the payment is reduced either: On the happening of a contingency relating to your child, or At a time that can be clearly associated with the contingency. 1040 x A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support. 1040 x Contingency relating to your child. 1040 x A contingency relates to your child if it depends on any event relating to that child. 1040 x It does not matter whether the event is certain or likely to occur. 1040 x Events relating to your child include the child's: Becoming employed, Dying, Leaving the household, Leaving school, Marrying, or Reaching a specified age or income level. 1040 x Clearly associated with a contingency. 1040 x Payments that would otherwise qualify as alimony are presumed to be reduced at a time clearly associated with the happening of a contingency relating to your child only in the following situations. 1040 x The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority. 1040 x The payments are to be reduced on two or more occasions that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24. 1040 x This certain age must be the same for each child, but need not be a whole number of years. 1040 x In all other situations, reductions in payments are not treated as clearly associated with the happening of a contingency relating to your child. 1040 x Either you or the IRS can overcome the presumption in the two situations above. 1040 x This is done by showing that the time at which the payments are to be reduced was determined independently of any contingencies relating to your children. 1040 x For example, if you can show that the period of alimony payments is customary in the local jurisdiction, such as a period equal to one-half of the duration of the marriage, you can overcome the presumption and may be able to treat the amount as alimony. 1040 x How To Deduct Alimony Paid You can deduct alimony you paid, whether or not you itemize deductions on your return. 1040 x You must file Form 1040. 1040 x You cannot use Form 1040A or Form 1040EZ. 1040 x Enter the amount of alimony you paid on Form 1040, line 31a. 1040 x In the space provided on line 31b, enter your spouse's social security number (SSN) or individual taxpayer identification number (ITIN). 1040 x If you paid alimony to more than one person, enter the SSN or ITIN of one of the recipients. 1040 x Show the SSN or ITIN and amount paid to each other recipient on an attached statement. 1040 x Enter your total payments on line 31a. 1040 x You must provide your spouse's SSN or ITIN. 1040 x If you do not, you may have to pay a $50 penalty and your deduction may be disallowed. 1040 x For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. 1040 x How To Report Alimony Received Report alimony you received as income on Form 1040, line 11. 1040 x You cannot use Form 1040A or Form 1040EZ. 1040 x You must give the person who paid the alimony your SSN or ITIN. 1040 x If you do not, you may have to pay a $50 penalty. 1040 x Recapture Rule If your alimony payments decrease or end during the first 3 calendar years, you may be subject to the recapture rule. 1040 x If you are subject to this rule, you have to include in income in the third year part of the alimony payments you previously deducted. 1040 x Your spouse can deduct in the third year part of the alimony payments he or she previously included in income. 1040 x The 3-year period starts with the first calendar year you make a payment qualifying as alimony under a decree of divorce or separate maintenance or a written separation agreement. 1040 x Do not include any time in which payments were being made under temporary support orders. 1040 x The second and third years are the next 2 calendar years, whether or not payments are made during those years. 1040 x The reasons for a reduction or end of alimony payments that can require a recapture include: A change in your divorce or separation instrument, A failure to make timely payments, A reduction in your ability to provide support, or A reduction in your spouse's support needs. 1040 x When to apply the recapture rule. 1040 x You are subject to the recapture rule in the third year if the alimony you pay in the third year decreases by more than $15,000 from the second year or the alimony you pay in the second and third years decreases significantly from the alimony you pay in the first year. 1040 x When you figure a decrease in alimony, do not include the following amounts. 1040 x Payments made under a temporary support order. 1040 x Payments required over a period of at least 3 calendar years that vary because they are a fixed part of your income from a business or property, or from compensation for employment or self-employment. 1040 x Payments that decrease because of the death of either spouse or the remarriage of the spouse receiving the payments before the end of the third year. 1040 x Figuring the recapture. 1040 x You can use Worksheet 1 in Publication 504 to figure recaptured alimony. 1040 x Including the recapture in income. 1040 x If you must include a recapture amount in income, show it on Form 1040, line 11 (“Alimony received”). 1040 x Cross out “received” and enter “recapture. 1040 x ” On the dotted line next to the amount, enter your spouse's last name and SSN or ITIN. 1040 x Deducting the recapture. 1040 x If you can deduct a recapture amount, show it on Form 1040, line 31a (“Alimony paid”). 1040 x Cross out “paid” and enter “recapture. 1040 x ” In the space provided, enter your spouse's SSN or ITIN. 1040 x Prev Up Next Home More Online Publications