Military: Tips, Benefits, and Incentives

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Its always preferrable to obtain tax relief on the front end rather than having to scramble for it after the IRS comes knocking. Today the IRS released another installment in its Summertime Tax Tips series, this time listing some special tax breaks for military personnel that can help them keep their tax bill low. Members of the military enjoy special benefits such as relaxed filing rules and deadlines, exempted combat pay, and deductions for moving and travel expenses. See the full article here.

After looking at this list, you may find yourself wondering what other classes of individuals qualify for special tax relief or benefits. One such group is the elderly. Another is the disabled. There are individual tax guides for each of these groups in case you want to read up:

  • Military: Pub 3
  • Seniors: Pub 554
  • Disabled: Pub 907

The government gives certain tax breaks to the elderly, and the disabled because we believe it is important to show compassion for these classes of individuals. As for the military, we are proud of what they are doing for our country and we want them to be able to focus more on the task at hand to increase the likelihood of success. Perhaps the military tax benefits are more akin to a different class of incentives that are offered to influence certain behaviors. Some of the behaviors that the government seeks to influence through tax incentives are energy efficiency, health, purchasing, education, and adoption. Maybe the tax benefits available to the military also work as an incentive for the youth of our country to join the armed forces. Of course whether or not tax incentives actually affect behavior is debatable.

Not Playing by Ja Rules

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Who: Recording Artist, Ja Rule (name in IRS records is Jeffrey Atkins).

What: Sentenced to over 2 years in prison.

How much: Failure to report over $3 million in income from 2004-2006.

More info: Ja Rule is currently serving a two-year sentence in a federal prison on a gun charge stemming from his 2007 arrest in New York City.

IRS Seeking Comments on Rules Re: Appeals Office Communications

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The IRS is proposing updates on the rules regarding ex parte communications between the Appeals Office and other IRS representatives and departments. The IRS stated: “[t]hese rules are necessary to ensure that the Office of Appeals remains an independent and flexible vehicle for settling audit and collection-related disputes between taxpayers and the IRS.” The proposed rules are set out in Notice 2011-62.

Basically, if the Appeals Office is going to communicate with another division or department within the IRS, the taxpayer, or the taxpayer’s representative, must be given an opportunity to participate in that communication. As far as I’m concerned, any strengthening of this rule is a good change. However, it seems to me that there are far too many exceptions to the proposed ex parte communications rules, almost to the point that the exceptions swallow the rule.

If you agree, or if you have other comments you wish to submit, contact the IRS by August 18, 2011. Visit the IRS Newsroom for mailing, emailing, and hand delivery instructions.

Extension on Heavy Highway Use Tax

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Sometimes tax relief comes by way of an unexpected extension.

The heavy highway use tax applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more, and is filed using Form 2290. The tax is based on the weight of the vehicle and can be as much as $550. The IRS transmits information from the Form 2290 to the individual state Departments of Motor Vehicles and states are required to verify payment of the highway use tax prior to registering these types of vehicles.

Normally Form 2290 must be filed by August 31st, but this year the deadline has been extended to November 30th. The IRS recently advised the public that returns should not be filed and the tax should not be paid prior to November 1, 2011. The highway use tax is due to expire on September 30, 2011, and the IRS wants to try to avoid any confusion that might be caused if Congress decides to modify or reinstate the tax after that date.

Penalties and interest may be charged for failure to file/pay this tax (or filing/paying late) just like any other tax. Furthermore, if you are a trucker and you also owe personal 1040 taxes, the IRS will normally require that you get current on filing & paying your 2290 heavy highway tax form before they will agree to a resolution of your 1040 taxes.

Taxpayer Advocate Interview

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Nina Olson, head of the Taxpayer Advocate Service (TAS) recently spoke with Kiplinger. Check out the details here. She doesn’t really say anything we haven’t heard her say before, but we do learn that her Washington D.C. office is adorned with toy bulldogs to help remind her staff that they are charged with the task of protecting the little guy from the ruthlessness of the IRS.

Bad Deductions in Iowa

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Who: Tax preparers, Howard & Jill Musin

What: Judge ruled in favor of government, stating that the Musins (on their clients’ behalf) “took numerous, unrealistic positions as to business deductions for … quintessentially personal expenses.”

How Much: $21 million in bad deductions

More Info: The couple has already been prohibited from practicing before the IRS; they now face further sanctions.

IRS Open House This Weekend

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On Saturday, July 16, 2011, the Internal Revenue Service (IRS) will have open houses at Taxpayer Assistance Centers across the country. The purpose of the open house is to provide help with tax filing issues during the weekend. The participating IRS Taxpayer Assistance Centers will be offering the same services that are normally offered on weekdays.

Among the services offered include accepting payments and making payment arrangements. In other words, you don’t have to wait until Monday to pay the IRS. However, for taxpayers seekingtax relief, the Taxpayer Assistance Centers will likely not meet their needs.

IRS Chasing Ghosts

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The Internal Revenue Service (IRS) recently announced it will be sending letters to taxpayers who appear to have had tax preparation assistance by ghosts. Such “ghost preparers” are paid tax preparers who attempt to elude IRS oversight programs by not signing the tax returns they prepare. The IRS warns taxpayers that they should never rely on a paid tax preparer that refuses to sign their tax returns and fails to enter a Preparer Tax Identification Number (PTIN).

In the letter to be sent to taxpayers, the IRS will inform such taxpayers of how to file a complaint against their paid tax preparers who failed to sign their returns and explain how to choose a legitimate tax preparer in the future. According to the IRS, the goal of the letters is to protect taxpayers by ensuring that all paid federal tax return preparers are registered with the IRS, and that such authorized preparers sign the tax returns they prepare, and use their identifying number when required to do so.

Additionally, on July 7, 2011, the IRS began to send approximately 100,000 compliance letters to tax preparers who failed to comply with regulations governing third-party tax preparation. All compensated tax return preparers must obtain a PTIN and, when required to do so, sign their names and include their PTINs on the returns and refund claims they prepare for compensation. Compensated tax preparers who are not tax attorneys, certified public accountants, or enrolled agents, must pass a competency exam and suitability check.

The approximately 100,000 paid tax return preparers under scrutiny may have used outdated PTINs or social security numbers as identifying numbers on returns they prepared this past filing season. The letters sent by the IRS explain a new oversight program and informs preparers of how to register for a new PTIN, or how to renew an old PTIN.

New “Death Planning” Venture

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Jess Bloomgarden, a Harvard Business School student started AfterSteps to “bring organization, completeness, and knowledge to the end-of-life planning process.” People are often challenged by trying to tie up loose ends after the death of a loved one. The process may involve working with multiple service providers and trying to ascertain the wishes of the decedent. Bloomgarden’s business is unique in that it brings all these things together for the user into a “complete end-of-life plan.” AfterSteps securely stores the plan and related documents, then transfers them to the designated family members after the plan’s owner passes away. The cost of this service is $4.00 per month. Bloomgarden believes that her new venture will simplify the end-of-life process and provide piece of mind to the user and their family members. Too bad she can’t offer a premium plan that would simplify the estate tax!