Tax News & Tips.jpg TAX NEWS & TIPS™        SINCE 1981
Your Client Newsletter                             1-800-368-8477 BLUELINE.gif (7193 bytes)

Tax News

California Assembly Procedure - Scannable Paper Returns

The FTB has revised its instructions for assembling Scannable 540 and 540A tax returns. 

#1 FTB does NOT want Page 1 stapled to the other forms & schedules.
#2 W-2s and other forms showing withholding are to be attached the New Schedule W.
     The Schedule W is placed after page 2 of form 540 or 540A.
#3 FTB does NOT want payment checks attached to the return.

All scannable returns are to be assembled as follows:

Staple all pages together in the upper left corner EXCEPT PAGE 1. 
Results:
    Page 1 will be left loose on top of the stapled pages.
    The first page in the stapled set will be page 2 of  form 540 or 540A, 
    The second page in the stapled set will be the NEW Schedule W (California W-2 Attachment page)
    Then all other supporting forms & schedules. 

A payment check is be left loose in the envelope in which the return is mailed to FTB. 
FTB does not want the check attached to the return.
(Instruct your clients to put their Social Security number(s) and the notation "Tax Year 2003, Form 540" on the checks.) 

Schedule W attach all Forms W-2, including Forms W-2G, as well as any Forms 1099 showing any California tax withheld.

Example: (from top to bottom)
Loose Payment Check
Loose Page 1
Stapled Set --
   Page 2, Schedule W with attached W-2s, etc. remaining forms, schedules and supporting documents.

California Mandatory E-Filing - Technical Correction

Assembly Bill No. 1742, 
Passed the Senate September 2, 2003, Passed the Assembly September 5, 2003. 
Signed by the governor on 9/20/03..

This bill clarifies that the provisions of the "mandatory e-filing law" (see below) applies to returns to be filed on and after January 1, 2004. 

EIN Procedure Changed - AGAIN

Two new services for business taxpayers have allowed the IRS to close its distinct telephone number for obtaining an employer identification number. 

Taxpayers needing an EIN now should use either the new business and specialty tax line, (800) 829-4933, or the new Online EIN Internet application at http://www.irs.gov. 

The old EIN number will be answered until Oct. 1, but replaced with a recorded message directing callers to the new number after that date. 

Hours for the new business and specialty tax line are Monday­Friday, 7:30 a.m. to 10 p.m. local time. Online EIN is available 24 hours a day, seven days a week. (Digital Dispatch,  Sept. 12, 2003)

California Mandatory E-Filing - Enacted into Law

The California Legislature has enacted within the 2003-2004 California State Budget 
Mandatory E-Filing of Individual Tax Return. 

Tax Preparers are subject to a penalty of $50 per return filed by paper. 
Effective Jan. 1. 2004 - B 1742.

This law is contained in AB 1765, Sections 56 & 57. Select this link to read the law.

2003 Federal Tax Rate Schedules, Etc.

IRS has posted more information about the 2003 Tax Law on the web.
Including Tax Rate Schedule, Standard Deductions, and more information.

Go to www.irs.gov and select the link to New Tax Withholding Tables page.

Be sure to cusor down that page for links to other subjects.

Taxpayers to Receive Advance Child Tax Credit This Summer

Beginning the last week of July, eligible taxpayers who claimed the Child Tax Credit on their 2002 tax returns will automatically receive an advance payment of the 2003 increase in this credit, the Treasury Department and Internal Revenue Service announced 5/28/03.

Taxpayers will not have to take any action to get this advance payment of up to $400 per qualifying child. The Treasury Department and IRS will perform all the calculations and automatically mail a notice and a check to each eligible taxpayer.

"The only thing the taxpayer needs to do is cash the check," said Mark W. Everson, IRS Commissioner. "If you qualify, we will send you a notice. There's no need to call, no need to apply, no need to fill out another form. The IRS will do all the work. A few days after the notice, you will get the check."

The checks ­ an advance payment of the 2003 increase in the Child Tax Credit ­ will be based on the child tax credit claimed on the taxpayer’s 2002 tax return. The Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the maximum child tax credit for 2003 to $1,000 per child, up from $600 for tax year 2002.  The law further instructed the Treasury Department to provide the difference ­ up to $400 per child ­ as an advance payment to each eligible taxpayer this summer.

The Treasury Department will issue about 25 million of these checks this year, beginning with three principal mailings on July 25, Aug. 1 and Aug. 8. Taxpayers who filed returns after April 15 ­ for example, those with automatic extensions ­ will receive their advance payments after the IRS processes their returns. They should not make any change to their 2002 returns or remittances based on an expectation of an advance payment check. 

The IRS will send notices to taxpayers on July 23, July 30 and Aug. 6, informing them of their advance payment amount. The IRS urges taxpayers to hold on to these notices for their 2003 tax returns. They will need to take the advance payment into account when determining the amount of their child tax credit on the 2003 tax return.

Taxpayers who are not eligible for the advance payment may still qualify for the increased child tax credit of up to $1,000 when they file the 2003 tax return next year. For instance, a taxpayer who did not have a child in 2002, but had one in 2003, would not receive an advance payment but may qualify for the full $1,000 credit on the 2003 tax return. 

More information, including answers to frequently asked questions, is available on the IRS Web site at www.irs.gov.

 2003 Withholding Tables and More Information Regarding 2003 Law (IR 2003-69)

IR-2003-69, May 28, 2003 WASHINGTON — 

The Internal Revenue Service today posted to its Web site at www.irs.gov new tables for employers to use in figuring how much federal income tax to withhold from workers’ wages.

The tables posted today contain the percentage method formulas used by payroll programmers. By week’s end, the wage bracket method tables should be on the site. The IRS expects to mail printed copies of Publication 15-T, containing all the tables, to employers nationwide by the third week of June.

The tables reflect changes made by the Jobs and Growth Tax Relief Reconciliation Act, which President Bush signed today. Employers are requested to use the new tables as soon as they can work them into their payroll systems. Barring unusual circumstances, they should implement them not later than July 1, 2003.

The tables incorporate tax rate changes for most taxpayers and the higher standard deduction for married couples.

The new law extended the 10 percent rate to cover the first $7,000 of taxable income for single persons, $14,000 for married couples. 

It also lowered the tax rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of two percentage points for each rate except the top one, which went down 3.6 points.

The new law also raised the standard deduction for married couples to $9,500 and extended their 15 percent tax rate to $56,800 of taxable income. Each figure is double the number for single taxpayers. The changes reduce the “marriage penalty” ­ the difference between the tax couples pay and the amount they would have paid as two single persons.

2003 Tax Act Passed by Congress

H.R. 2 -  Jobs and Growth Tax Relief Reconciliation Act of 2003.

May 23, 2003.  
The Senate vote on the bill was 50 to 50; Vice President Dick Cheney cast the tie breaking vote to pass it. 
The House passed the bill on a vote of 231 to 200. President signed the bill on May 28, 2003.

A copy of H.R. 2 can be obtained at http://thomas.loc.gov. 
              1. Do a search for Bill Number: H.R. 2. 
              2. Then select the Enrolled Version of H.R. 2.
                   Notes:
                   1. Read the HELP in the box with "Printer Friendly Display"
                   2. The contents of HR 2 are 17- 20 pages depending on the format you select. 

EIN, Form SS-4, Get ID# On-Line

This Internet EIN application opens another avenue for customers to apply for and obtain an employer identification number. Once you have completed all necessary fields on the online form, preliminary validation is performed and will alert you to information IRS needs that you may not have included. An EIN will be issued after the successful submission of the completed Form SS-4 online.

More Information at http://www.irs.gov/businesses/small/article/0,,id=102767,00.html 

ITIN APPLICANTS MUST USE NEW FORM STARTING APRIL 15, 2003

Both residents and non-resident aliens applying for an Individual Taxpayer Identification Number are required to use the newly revised Form W-7 beginning April 15, 2003.

The new application form requests additional information. The application is available in both English and Spanish on the IRS Web site, IRS.gov. The English language version of Form W-7 is available at www.irs.gov/pub/irs-pdf/fw7.pdf. The Spanish language version, Form W-7(SP), is available at www.irs.gov/pub/irs-pdf/fw7sp.pdf . They are also available by calling the toll-free Forms and Publications order line at 1-800-829-3676.

Along with their application, applicants must also submit documents proving their alien status and their identity. Individuals can mail the documentation to the Internal Revenue Service, Philadelphia Service Center, ITIN Unit, P. O. Box 447, Bensalem, PA 19020, process the application through an IRS authorized acceptance agent or submit their application at an IRS Taxpayer Assistance Center.

The IRS issues the nine-digit numbers to individuals who must have a U.S. taxpayer identification number but who aren’t eligible for a Social Security number. ITINs are for tax purposes only and don’t affect immigration status, authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

IRS Establishes Office of Professional Responsibility

IR-2003-3, Jan. 8, 2003

The Internal Revenue Service announced today the creation of a new Office of Professional Responsibility as part of its ongoing modernization effort and the appointment of Brien Downing as director. The Office of Professional Responsibility will be charged with enhancing the oversight of tax professionals. It replaces the office of the Director of Practice.
More Information at http://www.irs.gov/newsroom/article/0,,id=105533,00.html. 

EMPLOYER IDENTIFICATION NUMBER (EIN) Form SS-4 IMPROVED PROCESS

Reduced Maximum Exclusion From Sale of Residence

These temporary regulations explain the exclusion of gain from the sale or exchange of a principal residence for taxpayers who have not owned and lived in the residence for two of the last five years, or have excluded gain from another residence in the last two years.  These taxpayers may be entitled to exclude a reduced maximum amount of gain if the primary reason for the sale is a change in place of employment, health, or unforeseen circumstances.  
TD 9031.  Published December 24, 2002. http://www.irs.gov/pub/irs-regs/td9031.pdf 

Exclusions of Gain From Sale of Principal Residence
- Property Used Partially for Residential Purposes and Partially for Business Purposes

These final regulations describe the rules for excluding gain from the sale or exchange of a principal residence, including ownership and use requirements, the definition of a principal residence and how the exclusion applies to property used partially for residential purposes and partially for business purposes.  They also provide that an individual's residence may be entitled to exclude the gain if the individual would have qualified.  TD 9030.  Published December 24, 2002. http://www.irs.gov/pub/irs-regs/td9030.pdf. 

Election to Treat Trust as a Part of an Estate

These final regulations provide rules regarding an election to treat and tax a qualified revocable trust as part of an estate.  They also provide clarification of the reporting rules for a trust treated as owned by a grantor or another person for the taxable year ending with the death of the grantor.  TD 9032.  Published December 24, 2002.
http://www.irs.gov/pub/irs-regs/td9032.pdf

New California Pub. 1100 - New Non-Resident & Part Resident Rules

FTB Pub 1100 contains a summary of the New Rules for Non-Residents & Part Residents. 
This pub is a must for all tax professionals.
The publication can be downloaded at http://www.ftb.ca.gov/forms/index.asp
Select option Publications, Select Get forms, cusor down to Pub 1100, select it.

A copy of the new law, Assembly Bill 1115, can be obtained at http://www.ftb.ca.gov/education/taxnews/article/AB1115_%202.pdf 

U.S. To Merge 20,000 Web Sites Into One

The government is consolidating its 20,000 Web sites into a single Internet location offering information on everything from grants and contracts to an individual's benefits, President Clinton said yesterday.

"Whether you want crucial information in starting a small business or you want to track your Social Security benefits, you can do it all in one place, 24 hours a day," he said in his first exclusively World Wide Web address to announce the project.

The site, http://www.firstgov.gov, should be operating within 90 days..

"When it's complete," he said, "firstgov will serve as a single point of entry to one of the largest, perhaps the most useful collection of Web pages in the entire world."

Ann Gearan ASSOCIATED PRESS 25-Jun-2000 Sunday 

Tax Regulations on the web.

IRS Local News Net

IDENTIFYING NUMBERS FOR INDIVIDUAL PREPARERS
RATHER THAN  SOCIAL SECURITY NUMBER ON TAX RETURNS.

UPDATE 8/20/99 -- The Application Form W-7P is now available to obtain a Tax Preparer ID#.
It is available at IRS http://www.irs.ustreas.gov/prod/forms_pubs/forms.html .
I have also posted the form W-7P on our web site, just select this link (Note -- it is in PDF format).

California's Franchise Tax Board has advised me they will also accept the use of the IRS TPIN on 1999 returns. You will need to check with other states to determine if they will also accept the TPIN.

UPDATE 6/12/99 -- The draft of the 1999 Form 1040 posted on IRS web site shows after the preparer signature box on page 2 there is now a box for "Preparer SSN or PTIN". It looks as if the PTIN is for Preparer Tax Identification Number.

UPDATED 6/17/99 -- The following was obtained from IRS web site:
Alternative Tax Return Preparer Identification Number
Section 3710 of the IRS Reform and Restructuring Act of 1998 allowed the
Service to provide tax return preparers with alternative identifying numbers
(PTINs) to use in lieu of their SSNs on returns they prepare. The legislation
addressed preparers' concern that clientele could jeopardize their credit history,
finances, etc., by unauthorized use of their SSNs. Notice 98-63 communicated the
Service plan to implement this legislative change to IRC section 6109(a)(4) and
provided a contact phone number (202-622-4405) for updated information and
inquiries.
Form W-7P, Application for Preparer Tax Identification Number, will be
available in early August. At that time, preparers will be able to access, download
and print the Form W-7P from the IRS web site. The form may then be either
faxed or mailed to the IRS for processing. Numbers will first be issued in early
October, and applications received by mid-November should be processed in time
for the 2000 filing season.
The PTIN will contain nine (9) digits. The first digit is the letter "P" followed by
eight (8) numbers. No dashes are used in the number. The entry line on tax forms
will read: "Preparer's SSN or PTIN".
PTINs are not mandatory and preparers can continue to use their SSNs; however,
use of the SSN is required until the PTIN is received. The PTIN does not
substitute for the EIN of a firm preparing tax returns.

IRS Restruction & Reform Act of 1998

NEWS FROM IRS