IRS News Release  
March 17, 1994

IRS Offers Advice to Filers

WASHINGTON - With less than a month to go before the April 15 filing deadline, the Internal Revenue Service has some advice to help people avoid errors it has seen on some of this year's early returns.

A new mistake affects some people who lost their jobs due to corporate downsizing or restructuring. They often receive severance pay, which is taxable. As part of their separation agreements, they may also sign waivers releasing their former employers from potential future claims. Some have mistakenly treated the payments as nontaxable damages because of the waivers. According to the IRS, however, such waivers do not change the taxable nature on the severance pay, a conclusion reached in two 1993 court cases.

Some taxpayers are failing to report the tax on early distributions received from individual retirement arrangements or deferred compensation plans. If a distribution is not rolled over within 60 days, a 10 percent tax generally applies if the account holder is under age 59 and one-half. People who owe this tax must use Form 1040 not 1040A, listing it on line 51. The Form 1099-R reporting the early distribution payment should have code number "1" in box 7.

When itemizing deductions on Schedule A, people putting "other taxes" on line 7 must explain what type of tax it is, such as personal property tax. Some filers this year are omitting the description and just entering a deduction amount.

Some taxpayers who appear to owe self-employment tax are failing to include that tax on their returns. People who list self-employment income as "other income" on line 22 of Form 1040 should complete Schedule SE if their net profit was $400 or more.

The number of returns filed continues to draw closer to last year's figure--as of March 11, 1994, the IRS had received 47 million returns, about 1.2 million fewer than last year. Federal tax refunds now total nearly $29.2 billion. At $1,077, the average refund is up more than six percent.

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