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There are several key deadlines in September that are fast approaching that may require taxpayers to act quickly. While these deadlines may be of little concern to many taxpayers, those affected may profit greatly by taking timely action. For taxpayers that have hid money in offshore banks this may be a last chance to avoid criminal prosecution. For employers hiring unemployed veterans or disconnected youth, this may be an opportunity to claim the work opportunity tax credit (WOTC). Also, by acting promptly, taxpayers can elect to defer certain debt discharge income without adhering to the formal election procedures for about another 60 days. Electing promptly now also can preserve an opportunity to make a change to the election within the 60-day period. Unreported offshore income settlement offer In April, IRS announced what is in effect a settlement offer for those that voluntarily and timely disclose unreported offshore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value (i.e., 20% of the highest asset value of an account anytime in the past six years. Taxpayers who hid money offshore can avoid criminal prosecution by timely complying with the terms of the offer. These settlement terms remain in effect only for six months from Mar. 23, 2009 (the date that IRS actually released its voluntary disclosure offer). When this 6-month window closes—on Sept. 23, 2009—IRS said it would reevaluate all of its options, and warned that for those “who continue to hide their heads in the sand, the situation will only become more dire” (see Federal Taxes Weekly Alert 04/02/2009). IRS explained the specifics of the settlement offer in May and July (see Federal Taxes Weekly Alert 05/14/2009 and 07/02/2009). It released a new simplified application format for the settlement offer on its website in August (see Federal Taxes Weekly Alert 08/06/2009). WOTC. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) added a new targeted group to the Code Sec. 51 WOTC—unemployed veteran and disconnected youth. Generally, the WOTC credit is 40% of an employee's first-year wages up to $6,000, i.e., a maximum credit of $2,400 (.4 × $6,000). Under extended transition relief, an employer who hires an unemployed veteran or disconnected youth after Dec. 31, 2008, and before Sept. 17, 2009 will be considered to satisfy the deadline in Code Sec. 51(d)(13)(A)(ii)(II) if the employer submits the pre-screening notice to the designated local agency to request certification no later than Oct. 17, 2009. Under Code Sec. 51(d)(13), an individual won't be treated as a member of a targeted group unless the employer either gets a certification from a designated local agency by the day the prospective employee begins work or completes a pre-screening notice (Form 8850) for the employee by the day he is offered employment, and submits it to the designated local agency as part of a request for certification within 28 days after the employee begins work (see Notice 2009-69, 2009-35 IRB 261, Federal Taxes Weekly Alert 08/20/2009). Electing deferral of COD income on repurchased debt. Under Code Sec. 108(i), which was added by ARRA, cancellation of debt (COD) income from the reacquisition of business debt at a discount in 2009 and 2010 can be deferred until 2014, and then included in income ratably over five years. IRS has provided exclusive procedures to elect this deferral of COD income in Rev Proc 2009-37, 2009-36 IRB 309 (see Federal Taxes Weekly Alert 08/20/2009). This revenue procedure generally requires a taxpayer to make a Code Sec. 108(i) election by attaching a specified statement to its timely filed (including extensions) original federal income tax return for the tax year in which the reacquisition of the applicable debt instrument occurs. Under a transition rule, IRS will treat a Code Sec. 108(i) election as effective if a taxpayer files the election with its federal income tax return filed on or before Sept. 16, 2009, using any reasonable procedure to make the election. However, an election that doesn't comply with the revenue procedure won't be effective unless the taxpayer also files an amended return for the tax year of the election and complies with those requirements on or before Nov. 16, 2009. A taxpayer that files a Code Sec. 108(i) election on or before Sept. 16, 2009 may modify that election by filing an amended return on or before Nov. 16, 2009 (for example, to modify the amount of COD income the taxpayer elects to defer). Thus, elections on returns filed after Sept. 16, 2009 must comply with the requirements in Rev Proc 2009-37 to be effective. RIA observation: Code Sec. 108(i) applies to debt discharge income from the reacquisition of an applicable debt instrument after Dec. 31, 2008 and before Jan. 1, 2011. Thus, the transition rule only applies to fiscal year taxpayers, that would file their returns on or before Sept. 16, 2009. For example, a corporation with a fiscal year ending Jan. 31, 2009 that made a Code Sec. 108(i) election for debt discharge income from the reacquisition of an applicable debt instrument in January of 2009, would make the election on its return due Apr. 15, 2009 (the 15th day of the third month after the end of its tax year). Such a corporation could make the election in any reasonable manner but would have to file an amended return to comply with the revenue procedure on or before Nov. 16, 2009.
(Source: Federal Tax Updates on Checkpoint Newsstand tab 9/11/09) |
