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Strike That: IRS Guidance for Amending a Return

Yesterday, the IRS released advice for amending a federal tax return. Among the ten tips, the article highlights the circumstances necessitating an amended return, the number of forms needed, how long to wait before filing, when owed taxes should be paid, and more.

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Easier 11th Hour Filing

Yesterday the IRS provided advice for submitting returns just before – or on – April 15, listing seven steps to follow:

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Reports Find IRS Unpopular but Necessary

The Internal Revenue Service currently suffers from both the animosity many citizens bear toward the government’s collection agency and a series of political, legal, constitutional, and public relations gaffes that will be difficult to correct in the short term.  These perception and legal issues could cause serious problems for professional tax return preparers.

A national telephone survey of 1,000 likely voters earlier this year found that half of those polled to not trust the IRS to enforce the tax laws fairly.  Only 31 percent indicated that they trust the agency.  The survey, conducted for Rasmussen by Pulse Opinion Research, LLC, was conducted on March 22–23, 2015, and has a margin of error +/- 3 percentage points and a 95 percent level of confidence.

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Why Is My Refund Lower Than Anticipated?

If you have certain kinds of debt, including federal and state back taxes, child support, and student loans, then the Bureau of the Fiscal Service (BFS) – part of the Department of Treasury – can use your tax refund to offset that debt.

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The Premium Tax Credit: Do You Qualify?

April 15 is just around the corner, but there is still time to make sure clients have submitted the proper forms to secure the credits they are due. The IRS recently published a tax tip checklist to help taxpayers determine if they are eligible to receive the Premium Tax Credit (PTC). If a client – or one of their family members – purchased health insurance from a Marketplace, they need to file a Form 8962 to see if they qualify.

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PTIN Rule Breakers Receive Letter

This week, the IRS began sending letters to tax return preparers who have violated PTIN rules, targeting two groups in particular. Preparers who receive Letter 4732 filed tax returns using their Social Security Number in place of a PTIN, and Letter 4966 is sent to preparers using an expired PTIN.

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Expanding Profits by Preparing Forms 990

In a matter of weeks, the 2015 tax season will be over.  The federal individual and most state returns will be filed by mid-April (the exceptions are Hawaii, which has a filing deadline of April 20; Delaware and Hawaii, both filing on April 30; and the Commonwealth of Virginia, with a deadline of May 1), late returns are largely in process, and the tax preparation firm is winding down employment of seasonal staff. 

There is, however, one other major opportunity for substantial revenues (and profits) with minimal investments in time.  That opportunity is the preparation of the annual reports and financial reports for non-profit organizations that are reported on IRS Form 990 or Form 990-EZ (for smaller organizations). 

In general, the Internal Revenue Service requires tax-exempt organizations to file one of the following forms each year:  

Status Form to File  Instructions  
Gross receipts normally < $25,000 None  
Gross receipts normally ≤ $50,000
Note: Organizations eligible to file the e-Postcard may choose to file a full return
990-N n/a
Gross receipts < $200,000, and
Total assets < $500,000
990-EZor 990 Instructions
Gross receipts ≥ $200,000, or
Total assets ≥ $500,000
990 Instructions
Private foundation – regardless of financial status 990-PF Instructions

 Courtesy of 

Revenues available from serving non-profits 

According to the 2015 fee survey conducted by the National Society of Accountants, preparation of the Form 990 generates an average fee of $688, compared to $273 for an itemized Form 1040 with Schedule A and a state tax return. 

This number, however, is a simplification of the prospects for serving non-profits.  Much like the individual 1040 marketplace, there are other forms and services that may be used or required that enhance this fee.  For example, meeting with clients prior to accepting the 990 preparation engagement is typically $150 of service time. While it may be offered for “free,” those costs have to be recovered somewhere. 

Likewise would be a consultation with the non-profit’s board of directors to present the draft report and make corrections prior to filing, which can run as high as $500, depending on the organization and its structure. 

Other services may include: 

  • Form 990 EZ Preparation. Preparation of this four-page short form is more likely to cost the organization in the range of $500 to $700 due to the non-financial information required to be collected and validated.  Includes the 8-page Schedule A, the report of Public Charity Status, and statement of Public Support.
  • Form 990 Preparation. This 12-page report for organizations exempt from federal taxes, along with the 8-page schedule A, will typically cost $1,000 to $1,500.  Larger organizations, including those with for-profit subsidiaries, will require more wore and command larger fees.
  • Form 1023 Preparation and Filing. This is the application to the IRS for recognition as a tax-exempt organization should already be in the non-profit’s files.  If not, the organization will need one as rapidly as possible – or a duplicate of the original.  Either way, this form is a minimum of $500.
  • Form 8868 Preparation. Non-profit reports must be filed by the 15th day of the 5th month after the end of your organization’s accounting period. Thus, for a calendar year taxpayer, Form 990, 990-EZ, or 990-PF is due May 15 of the following year. The organization may request an automatic three-month extension, without showing cause, by filing a Form 8868, Application for Extension of Time to File an Exempt Organization Return.  The organization may request a second three-month extension by filing a second Form 8868 and explaining why it has reasonable cause for needing the additional three months.  This five-page report generally costs $250 and up. 

Rules of Engagement 

Two factors are emerging to drive the opportunity in non-profits – the need for continued growth in a tax preparation facing increasing competition; and the expected growth of the non-profit markets. 

In a survey of non-profit professionals in Washington, DC, approximately three-quarters indicated that they expect their nonprofit organizations to grow. Seventy-seven percent of the respondents expect growth and increased revenues in 2015, compared to 76 percent last year. Respondents reporting improved current financial health rose to 63 percent, up from 57 percent last year. 

To take advantage of these opportunities, however, will require that the tax practitioner follow a few rules before and during a non-profit engagement: 

  • Start slow and build. It is far better to build a practice on local charities and non-profits than to launch into complex national and international reports without experience.
  • Require clients organize all information prior to meeting.  No shoe boxes of receipts are acceptable, and the client is responsible for affirming that the financial and other data provided for the form is accurate and complete.  Much of the information may be found in the previous years’ Form 990s, and this will also provide comparative data to spot irregularities.
  • Ask for procedures and timing for bidding the engagement. Many organizations are required under their bylaws to put the Form 990 up for competitive bids every 1 – 3 years.  By knowing when, it is easier to present your firm and its capabilities.
  • Prepared to file extensions. Extensions are, in fact, a way of life in the non-profit world.  Organizations that are thriving are busy, caught up in legislation, running conferences and other events, can often be unprepared for the deadline to file.
  • Know the penalties for failuring to file. They can be steep.  If the organization does not file the Form 990 or request an extension, it may fall subject to penalties that accrue daily up to a maximum of $10,000 for non-profits with receipts below $1 million, and $50,000 for receipts above $1 million.
  • Review the Form 990 before filing. The form should be reviewed for accuracy not only by the preparer but by the non-profit board of directors and accounting executives.  

Non-profits, and particularly smaller or local organizations, are not difficult to serve in terms of filing their annual Form 990.  It requires some advance planning and preparation, but yields comparatively higher revenues for the engagements undertaken. 

Sources:  Capital One Bank; Internal Revenue Service: Forms 990 and 990EZ; National Society of Accountants Annual Fee Survey


Help! I Received a Letter from the IRS!

Given recent reports of ID theft-related tax fraud, it’s no wonder that some taxpayers are wary after receiving what appears to be a letter from the IRS requesting personal information. You might have seen Facebook posts from clients asking about strange letters requesting “ID verification.” It turns out that these Letters 5071C are not only legitimate but also serve as one of the tools the IRS uses to combat fraud. Luckily, the IRS posted details about the letter to help answer any initial questions recipients might have.

Letter 5071C is mailed to verify the name and social security number of the addressed taxpayer after receiving a potentially suspicious federal income tax return using that person’s information. Both the letter and the IRS website provide instructions for responding to the letter, which are listed below:

Users should have a copy of both their current and prior year’s tax return when responding. After verifying the return, the taxpayer should expect a six-week turnaround time for their return.

To read the article in its entirety, follow this link.

Source: Internal Revenue Service

IRS Warns Against Fraudulent Preparers

A recent warning issued by the IRS alleges fraud is being perpetrated by unethical tax preparers targeting Spanish-speaking taxpayers who lack fluency in English. The IRS cites reports of tax preparers insisting that individual shared responsibility payments be made to the preparer – or a designated third party – rather than the IRS.

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IRS Discusses IRAs in Newest “Tax Time Guide”

The newest IRS guide, “Still Time to Contribute to an IRA for 2014,” briefly covers some differences between traditional and Roth IRAs, including how much taxpayers may contribute to their respective IRA in 2014, whether those contributions are deductible, how workplace retirements interact with a traditional IRA, and taxpayers’ eligibility for saver’s credits based on income levels.

The following are highlights from the article:

  • Taxpayers who are 70 ½ or older at the end of 2014 cannot add money to a traditional IRA.
  • Traditional IRA deductions are claimed on Line 32 of Form 1040 and Line 17 of Form 1040A.
  • April 15, 2015 is the last date that money added to a traditional or Roth IRA will count toward tax year 2014.

To read the article in its entirety, follow this link.

Source: Internal Revenue Service