Tax Season To Start On Time Except for Certain Taxpayers Affected by AMT Patch

The IRS announced on December 27th that the upcoming tax season will begin on time except for taxpayers affected by five forms related to the Alternative Minimum Tax (AMT) patch.  There may be as many as 13.5 million filers using those forms, but the IRS estimates the number will be closer to 3 or 4 million, based on usage of the forms in past years.  The five forms affected are:

• Form 8863, Education Credits
• Form 5695, Residential Energy Credits
• Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers
• Form 8396, Mortgage Interest Credit
• Form 8859, District of Columbia First-Time Homebuyer Credit

The IRS has identified February 11th as the estimated date when the affected forms related to the AMT patch may begin to be filed.  Electronic returns for these five forms will not be accepted until the IRS can update their systems in February.  Paper returns should not be filed until then, either.

The delay for these five forms should not have a large effect on most VITA sites.  There will be no delay for the Child and Dependent Care Expenses on the 1040 form.   You will only be affected by the Child and Dependent Care Expense schedule if your site is filing 1040A’s. 

However, if you have clients who need to file the 8863 form for Education Credits (Hope and Lifetime Learning Credits), the 8396 form for Mortgage Interest, or any of the other forms listed above, you will see an effect.  We are attempting to find out from the IRS what would be the best way to proceed regarding preparing and transmitting returns and forms affected by the AMT patch.  We will be discussing this issue on the Tax Season Kick-Off call, which will happen sometime next week.  We will make an announcement over the listservs when that call is scheduled.  This call will also be followed by detailed minutes, which will be sent out to the listservs.  Please stay tuned for more information, which should be coming shortly.

Read the full IRS press release, and more information on the AMT patch and its effect on the upcoming filing season.

Taxpayers with ITIN/W2 Mismatch May E-File This Year

The IRS e-file system has been changed to allow returns being filed with an Individual Taxpayer Identification Number to show wages reported to a Social Security number. It is now possible to a file a return with an ITIN/SSN mismatch.  In the past, these returns could only be filed on paper.

The taxpayer's correct ITIN should be used as the identifying number at the top of Form 1040. When inputting wage data, the SSN should be entered exactly as shown on the Form W-2 issued by the employer.

Why the change?
A file error code was designed to reject returns filed with typographical errors, but the unintended consequence led to returns being rejected because of ITIN/SSN mismatches. The IRS has changed the programming to ensure that these returns will not be stopped, and transcription errors can still be caught. The change means that ITIN returns with an ITIN/SSN mismatch can be a filed. This change will help ensure that tax information is being captured in the most efficient manner possible.

Does this cover other mismatches (for example 1099-R)?
No, the programming change is only for inputting Forms W-2 with a Social Security number while the return is filed with an ITIN.

Will the W-2 wages be credited to the ITIN holder? How will this affect the person whose SSN is being used?
The wages are reported as being earned by the ITIN holder, and are taxable to the ITIN holder. The change will make it easier for IRS systems to associate the wages with the ITIN holder. This will stop the IRS from sending a notice to the person whose SSN is being used and eliminates the need for that person to prove that they did not earn the wages.

Has this changed the W-7 application process?
No. The process for submitting Form W-7, Application for an IRS Individual Taxpayer Identification Number, is the same as before. This is a change to the IRS a file system as it relates to tax returns filed by individuals who already have an ITIN.

Isn’t it illegal for people to use the SSN of another person?
Yes, but the Internal Revenue Code does not distinguish between legal or illegal income. Regardless of how the income was earned, if it is taxable income, the person who received the income is required to file a federal tax return and report the income. Individuals with ITIN/SSN mismatches on their tax returns have always been required to file – this change just makes it possible to file the return using the IRS e-file system.

New IRS Interpretation for Qualifying Children

Per IRS notice 2008-5, released on December 20, 2007, the IRS has changed the way they interpret the rules for qualifying children. The new interpretation will affect some of the families we serve. In summary, what the IRS now says is that a child may be claimed as a qualifying relative by an unrelated taxpayer, even if that child lives with a parent, as long as the parent is not required to file a return and does not file, or if the parent files a return solely to obtain a refund of income tax withheld.

To illustrate using an example: Adam lives with his girlfriend Betty and her son Charlie. Adam is not related to Charlie. Adam is the only one in the household with income and provides support for Betty and her son. Adam may claim Betty as his dependent under the rules for qualifying relative. Under the new guidance, Adam may also claim Charlie as a dependent, also as a qualifying relative. This is true because Betty has no filing requirement.

The previous interpretation by IRS was that because Charlie was Betty's qualifying child under the rules for Uniform Definition of Qualifying Child, that excluded Adam from claiming Charlie as a qualifying relative.

This change will be in effect for the upcoming tax season! Please make sure that you and any of your volunteers who prepare taxes are familiar with this new interpretation. Please note that because of this change, the original certification test prepared by the IRS was incorrect under Section 2.   They have corrected the error in the online Link ‘n Learn test.  In order to find out how to correct errors in the pen and paper version of the test, please email SPEC at wi.spec.product.ideas.changes@irs.gov. 

The new guidance only affects the rules for dependency. It does not affect the rules for the Child Tax Credit or EITC.

If you have any questions, please contact Rolando Palacios, Director of Tax Services at the Center for Economic Progress, at rpalacios@centerforprogress.org.

Federal Funding for Community VITA Becomes Law

Last Wednesday, December 26th, President Bush signed the federal government’s 2008 budget bill into law and included in that package is $8 million to establish and fund a matching grant program for community tax preparation organizations.  This is what the National Community Tax Coalition and its nationwide network of affiliates have been fighting for since we came together more than five years ago.  All of the hard work paid off and now there will be a new stream of federal dollars, up to $16 million (matched by state, local, and other sources), to support the great work you do for low-income workers and families in your communities.  

As you know, it is very difficult to get federal legislation passed and you should feel proud that we as the NCTC led this persistent effort.  All of the calls, visits, e-mails, and letters over the years made a difference.  It was the local affiliates who made the case to their federal legislators, and in the end, Congress made a commitment to the critical role that community tax preparers play in providing high quality, taxpayer services to low-income taxpayers throughout the country.

Here is the text of the bill:

“For necessary expenses of the Internal Revenue Service to provide taxpayer services, including pre-filing assistance and education, filing and account services, taxpayer advocacy services, and other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $2,150,000,000, of which not less than $3,000,000 shall be for the Tax Counseling for the Elderly Program, of which not less than $9,000,000 shall be available for low-income taxpayer clinic grants, of which not less than $8,000,000, to remain available until September 30, 2009, shall be available to establish and administer a Community Volunteer Income Tax Assistance matching grants demonstration program for tax return preparation assistance, and of which not less than $177,000,000 shall be available for operating expenses of the Taxpayer Advocate Service.”

Here are the rules for the program:

“The amended bill also provides $8,000,000, to be available until September 30, 2009, to establish a matching grant demonstration program for Community Volunteer Income Tax Assistance (VITA) programs, instead of $10,000,000 as proposed by the Senate and no funding as proposed by the House. The Appropriations Committees direct that the matching grant program be administered by the IRS in consultation with the Taxpayer Advocate Service. The program shall provide direct funds to enable VITA programs to extend services to underserved populations and hardest-to-reach areas, both urban and non-urban, as well as to increase the capacity to file returns electronically, heighten quality control, enhance training of volunteers, and significantly improve the accuracy rate of returns prepared by VITA sites. The Appropriations Committees direct the IRS, in consultation with the National Taxpayer Advocate, to submit to the Committees, within 90 days of enactment, a proposed design plan for the matching grant program, including the scope of eligibility, an equitable selection methodology with takes into account geographic diversity, and an evaluation component to measure the overall effectiveness of the program and the results achieved.”

Here are some points to consider:

• This matching grants program will be administered by the IRS, most likely by the SPEC office, which made the most sense from Congress’s perspective because they administer the other VITA programs, including Tax Counseling for the Elderly (TCE) and Military VITA.
  
  
• The Taxpayer Advocate Service will be consulted regarding the design of the program, which is important because we recommended modeling the new VITA matching grant program after the current Low-Income Taxpayer Clinic (LITC) program.  In addition, the National Taxpayer Advocate will also be consulted regarding the administration of the program, which will help to ensure that it meets the intentions and goals set forth in the legislation.
  
  
• The $8 million is spread out over two years, but almost all of those dollars will be dispersed in the form of grants in time for the 2009 filing season, because there is obviously not enough time to establish the program, process applications, and award grants for the 2008 filling season.

We as NCTC intend to offer our input regarding the ultimate design of the community VITA matching grant program.  Toward that end, we will soon be assembling a team comprised of local affiliates with on-the-ground knowledge and expertise to shape our recommendations and suggestions to the IRS and SPEC.

As we learn more about this new program, we will relay that information to you.  In the meantime, if you have any questions or comments about this new community VITA grant program, please e-mail Jonathan Njus (jnjus@centerforprogress.org) or call him at (312-630-0254).

New Program Makes it Easy for Clients to Save on Prescription Medications – Possible Product for Tax Sites

One of the major challenges that faces many of our clients who don’t have health insurance is how to pay for needed medications.  To help these individuals, 11 pharmaceutical companies have created the Together Rx Access™ Program, a free prescription savings program that helps families who qualify to save significantly (for most cardholders, 25 to 40 percent) on their prescriptions.  While all medications may not be covered, the program includes medications to treat common conditions such as depression, cancer, high cholesterol, asthma, diabetes, and more. 

Clients who participate in this program will receive a quick start savings card, which is a preprinted removable card that is detached from a brochure that can be made available at tax sites and in your offices.  Clients then call a toll-free number on the brochure to find out if they are eligible, to enroll, and to activate their card.

Eligibility requirements include:

• Client does not qualify for Medicare
• Client does not have public or private prescription drug coverage
• Household income is up to $30,000 for a single person, and up to $60,000 for a family of four (income eligibility is adjusted for family size).
• Clients are legal residents of the United States or Puerto Rico.

For more information on this program visit TogetherRxAccess.com or call 800-250-2839.

If you are interested in receiving a supply of Together Rx Access brochures with quick start savings cards for distribution to your clients, please contact Amy Niles, Chair, Medical Relations and Advocacy, Together Rx Access at amyniles@aol.com   

NCTC Staffing Updates

In November, the National Community Tax Coalition welcomed a new staff member, Judy Wemhoff.  Judy Wemhoff is the new Communications Manager for the Coalition.   She will handle many of the Member Services functions that were previously performed by Don Wedd.  Judy will be overseeing all of the communications that go out from the Coalition to the field, through our listservs, newsletter, website, and other means.  You may have already begun to see some communications from her.  You can reach Judy by email at jwemhoff@centerforprogress.org.  

Don Wedd has moved into a new position for the Coalition.  He is now serving as the Website and Database Manager.  Don will manage all of the technology that underlies the work that the Coalition does.  He will work to make sure that the Coalition uses the technology that is available to meet the needs of our affiliates.  You can reach Don by email at dwedd@centerforprogress.org.

Billo Communications Survey – EITC Outreach Tools

Many of you who attended NCTC's 2007 conference in Denver saw the table for Billo Communications, which featured technological resources to reach clients and teach them about the EITC, including website banners, online videos, and ring tones. Billo Communications has prepared a survey to ask your opinions on which technologies you might find useful to help you promote the EITC. We encourage you to complete the survey.

 

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