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 ROGER A. KAHAN, CPA
Tax, Business and Financial Advisor
Serving the tax and financial needs of
individuals and small to medium businesses
almost anywhere in the USA
500 North Main Street, Suite E
Randolph, MA 02368-6700
VOICE: 781.963.RAK-1  www.RAK-1.com  e-mail:
kahan@RAK-1.com
Copyright ©2009 Roger A. Kahan, CPA
- ALL RIGHTS RESERVED
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TOPICS COVERED IN THIS ISSUE:
Homeowner tax liens
Hobby loss rules
The Massachusetts “Match Game”
Required Minimum Distributions
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IRS Goes Easy on Homeowner Tax Liens
Washington, D.C. (Dec. 17, 2008)
By WebCPA staff
The Internal Revenue Service plans to make it easier for financially troubled homeowners to avoid federal tax liens that block them from selling their homes or refinancing their mortgages.
The IRS noted that taxpayers facing a lien from the IRS already have some options. Taxpayers or their representatives or lenders can request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring the loan. This is known as lien subordination. Taxpayers or their representatives can also request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.
The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS said it will now work to speed those requests in the wake of the economic downturn.
"We don't want the IRS to be a barrier to people saving or selling their homes," said IRS Commissioner Doug Shulman in a statement. "We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes."
To apply for a certificate of lien subordination, taxpayers or their representatives must follow the directions in Publication 784, "How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien." To apply for a tax lien discharge, applicants must follow the directions in Publication 783, "Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien."
The IRS also urges people to contact the agency's Collection Advisory Group early in the home sale or refinancing process so it can begin work on their requests. Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.
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IRS REMINDS TAXPAYERS ABOUT HOBBY LOSS RULE
The IRS has released a fact sheet to help taxpayers determine whether an activity is engaged in for profit or merely as a hobby. The fact sheet discusses the hobby loss rules and lists several non-inclusive factors to be considered when making this determination, including:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Do you depend on income from the activity?
- If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
- Have you changed methods of operation to improve profitability?
- Do you have the knowledge needed to carry on the activity as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years?
If an activity is not for profit, losses from that activity may not be used to offset other income and deductions cannot exceed the gross receipts from the not for profit activity. Further, hobby deductions are claimed as itemized deductions in the following order and only to the extent stated in each of three categories:
- Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
- Deductions that do not result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
- Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
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A SPECIAL LOCAL VERSION OF “THE MATCH GAME”
Gene Rayburn is NOT your friendly host in this version!!!–
The MA Dept of Revenue recently started to send out their version of 2005 Holiday Greetings to about 30,000 MA taxpayers. Now that the IRS W-2 data for 12/31/2005 is available, the DOR is running a “matching program” to match 2005 MA wages reported to 2005 federal wages reported. Maybe you have gotten one of these holiday messages. According to Dana Ackerman, the Acting Taxpayer Advocate of the DOR, this is a mature program the DOR has been conducting for about five years now.
The DOR refers to this as their “return to return project”. And, they’re not limited to simply matching W-2 details. With the information now provided by the IRS and their experience from prior years, Ackerman says the DOR can map almost every line of Form 1 to corresponding information on the federal returns. If the two target numbers (federal and MA) DON’T match, the taxpayer – your client – gets a prize; a Notice of Intention to Assess. The DOR doesn’t say this, but they expect you to EXPLAIN the discrepancy, by responding to the desk auditor at the Audit Division. If there isn’t a reasonable explanation, they expect the taxpayer respond by sending a negotiable order of withdrawal (check) in payment. To demonstrate their holiday spirit, the DOR is only calculating interest on the balance due & not assessing penalties. But, if they have to send a second notice to get a response, expect to get a lump of coal (penalties) added to that second holiday card – the Notice of Assessment.
However, it seems quite a number of taxpayers have no clue what to do - except, to send in the money.
The Clock is Running - Under administrative rules in MA, the Notice of Intention to Assess starts the clock running. The taxpayer has a thirty-day window, starting from the date of the NIA, to request, in writing, a “pre-assessment hearing” with the Commissioner. A timely request in writing for a conference must be received by the Commissioner not later than the thirtieth day following the issuance of the notice of intention to assess. A request for a conference received after the thirtieth day following the issuance of the notice of intention to assess will be considered solely at the discretion of the Commissioner.
An assessment based on third party information - A special set of rules apply for items identified through the matching program. For returns filed on or after July 1, 2003, the DOR may now correct returns based on information from third party sources (such as the IRS) and assess a deficiency immediately and without sending the Notice of Intention to Assess. In these cases, the DOR will notify the taxpayer of the change and the reason for the change with the "Notice of Change to Your Tax Return."
The taxpayer has thirty (30) days from the date appearing on the Notice of Change to respond, in writing, or the corrected assessment becomes final.
No increased incidence of audits – Ms Ackerman also indicated that there is no connection between the DOR’s recent help wanted ad and the increased flurry of audit notices.
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Roger A. Kahan is a Certified Public Accountant, a Tax, Business and Financial Advisor serving the tax and financial needs of individuals and small to medium sized businesses primarily in eastern Massachusetts (as well as almost anywhere in the United States). Roger is always seeking additional clients and other professional’s clients to advise and improve their personal or business life. Do you know of someone that could use our professional services? Please let us know if we can use your name in an introductory letter or phone call. We do offer a referral fee to those that join our ever-increasing list of tax clients. Call for more details. Thank you.
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The Massachusetts Society of CPAs represents over 8,800 Certified Public Accountants
working in public accounting, industry and business, or in government and
education.
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REQUIRED MINIMUM DISTRIBUTIONS
I would like to inform you of recent legislative changes that were passed by both houses of Congress and signed by the President this past year. This legislation, entitled The Worker, Retiree and Employer Recovery Act of 2008 (The Act), is designed to help alleviate the financial burden facing investors who have seen their retirement savings shrink dramatically due to this year’s economic downturn.
The Act will provide relief during 2009 to two types of investors:
- A. Those over age 70½ that hold retirement assets in 401(k)s, 403(b)s, 457(b)s and traditional IRA accounts.
- B. Holders of inherited assets still registered in the name of the decedent in 401(k)s, 403(b)s, 457(b)s and traditional IRA accounts.
It does so by suspending required minimum distributions (RMD), the mandatory withdrawals previously required of all defined contribution plan participants over age 70½ .
The suspension of RMDs in 2009 allows you to forego or reduce asset liquidations that otherwise would have been required to generate your cash distributions. As a result of the RMD suspension, you need not liquidate assets at current price levels, and may continue to keep your holdings invested on a tax-deferred basis with no penalty. If you choose to do so, you retain the opportunity to await stronger market conditions for future liquidations. You are also free to continue to receive distributions according to your current schedule if you do not wish to make any adjustments in 2009 based on The Act.
Please note, however, that the new tax law applies only to 2009. It does not provide a waiver of your 2008 RMDs or any 2008 distribution that has been delayed until April 1, 2009. I look forward to sharing ongoing updates regarding this important legislation with you as they become available.
You will continue to receive systematic distributions from your retirement account according to your current election. Should you wish to change your election to take advantage of the 2009 RMD suspension, please contact me and I will work with you to establish any changes you wish to make.
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REMEMBER:
“It’s
not what you make that COUNTS; it’s
what you keep!”
“A failure to plan is a plan to fail.” (Anonymous)
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Did you know I do more than just prepare, compile and crunch numbers? I am not just a “bean-counter.” I can also advise you on estate and business planning and offer financial strategies to meet your goals. As your TRUSTED ADVISOR, I know your financial needs better than many other professionals you may be working with.
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“Planning for the future is a lot like planting a tree. You’ve got to do it today if you want your family to enjoy it tomorrow.
 
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