A Social Security Number (SSN) is used by a U.S. person and third parties for purposes of reporting income, loss, and interest realized by that particular person. The SSN allows IRS to track the accuracy and satisfaction of each person’s tax filing and payment obligations. For a person, who does not qualify for an SSN, but does have a tax filing and/or payment obligation, IRS may assign an Individual Taxpayer Identification Number (ITIN). An ITIN may be assigned regardless of an applicant’s immigration status because the Internal Revenue Code (IRC) imposes tax filing obligations on both resident and nonresident aliens. The primary use and purpose of issuing an ITIN is to ensure a non-citizen’s compliance with the IRC. Therefore, to qualify for and obtain an ITIN, an applicant must have a tax filing obligation and file a return, subject to certain exceptions. To ensure ITINs are being used for legitimate tax purposes, IRS recently revised certain procedures to provide that new ITINs will expire after five years.

For Corporations (Form 1120) and S-Corporations (Form 1120-S) with a fiscal year-end of December 31, the deadline to file a tax return is March 15. For many of these businesses, the required documentation may not have been finalized or available to prepare the return, so an extension of time to file may have been requested. The IRS will allow an automatic 6 month extension to file the return if a Form 7004 is filed by the original tax deadline. An extension does not extend the amount of time to pay the tax due on the return. It is an extension of time to file, not an extension of time to pay. Any taxes due are still due on the initial deadline or additional penalties and interest will be assessed from the original filing deadline.

After weeks, indeed months of proposals and counter-proposals, seemingly endless negotiations and down-to-the-wire drama, Congress has passed legislation to avert the tax side of the so-called “fiscal cliff.” The American Taxpayer Relief Act permanently extends the Bush-era tax cuts for lower and moderate income taxpayers, permanently “patches” the alternative minimum tax (AMT), provides for a permanent 40 percent federal estate tax rate, renews many individual, business and energy tax extenders, and more. In one immediately noticeable effect, the American Taxpayer Relief Act does not extend the 2012 employee-side payroll tax holiday.

Businesses

The business tax incentives in the new law, while not receiving as much press as the individual tax provisions, are valuable. Two very popular incentives, bonus depreciation and small business expensing, are extended as are many business tax “extenders.”

Bonus Depreciation/Small Business Expensing. The new law renews 50 percent bonus depreciation through 2013 (2014 in the case of certain longer period production property and transportation property). Code Sec. 179 small business expensing is also extended through 2013 with a generous $500,000 expensing allowance and a $2 million investment limit. Without the new law, the expensing allowance was scheduled to plummet to $25,000 with a $200,000 investment limit.

Small Business Stock. To encourage investment in small businesses, the tax laws in recent years have allowed non-corporate taxpayers to exclude a percentage of the gain realized from the sale or exchange of small business stock held for more than five years. The American Taxpayer Relief Act extends the 100 percent exclusion from the sale or exchange of small business stock through 2013.

Tax Rates: The American Taxpayer Relief Act extends permanently the Bush-era income tax rates for all taxpayers except for taxpayers with taxable income above certain thresholds:

$400,000 for single individuals, $450,000 for married couples filing joint returns, and $425,000 for heads of households. For 2013 and beyond, the federal income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. In comparison, the top rate before 2013 was 35 percent. The IRS is expected to issue revised income tax withholding tables to reflect the 2013 rates as quickly as possible and provide guidance to employers and self-employed individuals.

Recently, end of year tax planning for businesses has been complicated by uncertainty over the future availability of many tax incentives. The 2012 year end is no different. In 2010, Congress extended many business incentives for one or two years. These incentives are about to expire. In addition, many of the “Bush-era” tax cuts are scheduled to sunset at the end of 2012. It is unclear if Congress will provide further extensions as they debate across-the-board spending cuts scheduled to take effect in 2013. In addition, businesses must prepare to comply with healthcare reform. This combination of events provides tax planning considerations unique to 2012 that requires a multi-year strategy taking into account a variety of scenarios and outcomes.

Re-election of President Obama for a second term now sets in motion negotiations between Democrats and Republicans over Bush-era tax cuts and expiring tax extenders.

DEADLINES

At this point effective January 1, 2013:

- Bush-era tax cuts, extended by the Tax Relief and Job Creation Act of 2010, expire

- Across-the-board spending cuts take effect under the Budget Control Act of 2011

- The employee-side payroll tax holiday ends

- More individual and business tax extenders expire

The Internal Revenue Service recently announced cost of living and inflation adjustments for pension plans, retirement related items, and numerous tax provisions for tax year 2013.

Highlights include:

When considering a short sale, sellers and agents naturally expect the negotiations to occur between the seller and the mortgage lender(s). Unfortunately, distressed homeowners may encounter other lurking lienholders, such as the Internal Revenue Service (IRS).

IRS holds statutory lien rights which may be exercised in the event an individual or business fails to meet their tax obligations. The existence of such a lien can potentially defeat or delay an attempted short sale and cost all parties involved time and frustration. However, this issue may be resolved if addressed early in the process of the negotiations.

Quite a bit of confusion begins to stir around this time of year. Many taxpayers contact us requesting a “second extension” as the deadline approaches because they might not yet be ready to file the return. This stems from the old extension procedures IRS had, when a "second extension" of time to file could be requested using Form 2688. Under the old extension procedures, you would request an automatic 4-month extension followed by a 2-month second extension. Since the inception of the Form 4868 and 7004, the extension now grants you an extra six months to file your taxes, but there is no second extension.

For Individuals and Partnerships with a fiscal year-end of December 31, the deadline to file a tax return was April 15 (extended to April 17 this year because of Emancipation Day). For many of people, the required documentation may not have been finalized or available to prepare the return, so an extension of time to file may have been requested. The IRS will allow an automatic 6 month extension to file the return if a Form 4868 for Individuals or Form 7004 for Partnerships is filed by the original tax deadline. An extension does not extend the amount of time to pay the tax due on the return. It is an extension of time to file, not an extension of time to pay. Any taxes due are still due on the initial deadline or additional penalties and interest will be assessed from the original filing deadline.

Many people become paralyzed with fear when they owe money to such an onerous creditor as the Internal Revenue Service. They cringe at the sight of that dreaded piece of mail – a notice from the IRS. The most important thing is to respond promptly. Ignoring the problem will only make it worse.

An IRS notice includes the amount of tax owed, plus any penalties and interest added from the date the tax was due. If you are unable to pay your balance in full, and fail to respond, the IRS will begin collection actions against you. This may include offsetting any refund to which you may be entitled, filing a notice of federal tax lien against your property, or serving a notice of levy of assets such as wages, bank accounts, Social Security benefits and retirement income. To prevent these drastic actions, you must communicate with the IRS promptly.