What are the new changes for 1998?
Refer to Tax Topic 302, Highlights of
Tax Changes, for a brief overview of the tax law changes that are effective
in 1998. Some items will be discussed in more detail in separate topics.
Remember, this information is effective for your current 1998 return. For
more detailed information, refer to Publication
553, Highlights of 1998 Tax Changes.
Has the exclusion from income of up to $5,250
of employer-provided educational assistance under a qualified plan been
extended?
Yes. It now applies to benefits you receive for courses that begin
before June 1, 2000. However, the exclusion does not apply to graduate-level
courses that begin after June 30, 1996. For more information, get Publication
508, Educational Expenses.
What can I do to avoid any errors on my tax
return in order to receive my refund as quickly as possible?
Refer to Tax Topic 303, Checklist of
Common Errors When Preparing Your Tax Return, to assist you in double
checking your arithmetic and your entire return to help eliminate any delays
in receiving your refund.
If I won't be able to finish my return by April
15, can I get an extension?
Yes. You can get an extension by filing Form
4868, Extension of Time to File U.S. Individual Income Tax Return,
by April 15. By filing the extension, you avoid the late filing penalty.
However, Form 4868 does not extend the time to pay your income tax. For
more details, refer to Tax Topic 304, Extensions
of Time to File Your Tax Return.
Special rules apply to U.S. citizens and residents who are not in
the United States on April 15. For more information, refer to Publication
54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
I will be vacationing overseas on April 15.
Since I will be out of the country, do I qualify for the automatic 2-month
extension?
You are allowed an automatic 2-month extension (until June 15, if
you use a calendar year) to file your return and pay any federal income
tax that is due if you are a U.S. Citizen or resident and on the regular
due date (April 15, if you use a calendar year):
- You are living outside of the United States and Puerto Rico, and
your main place of business or post of duty is outside the United States
and Puerto Rico, or
- You are in the military or naval service on duty outside the United
States and Puerto Rico.
Vacationing is a temporary status that does not meet the criteria
for the automatic 2-month extension.
How long do I need to keep certain records?
Records such as receipts, canceled checks, and other documents that
prove an item of income or a deduction appearing on your return should
be kept until the period of limitations expires for that return. Usually
this is three years from the date the return was due or filed, or two years
from the date the tax was paid, whichever is later. There is no period
of limitations when a return is false or fraudulent or when no return is
filed. You should keep some records indefinitely, such as property records,
since you may need them to prove the gain or loss if the property is sold.
For more details, refer to Publication
552, Recordkeeping for Individuals.
If you are an employer, you must keep all your employment tax records
for at least four years after the tax is due or paid, whichever is later.
For additional information, refer to Tax Topic 305,
Recordkeeping. People in business often have expenses for travel,
entertainment, and gifts. The documentation you should keep for each of
these expenses can be found in Publication
463, Travel, Entertainment, Gift, and Car Expenses.
I was a student in 1997 and had no income.
In 1998, I started working and did not have enough tax withheld. Will I
owe a penalty because I did not make estimated tax payments?
You will not have to pay a penalty for 1998 if you did not owe tax
for 1997. For additional information on the penalty for underpayment of
estimated tax, refer to Tax Topic 306. For information
on how to increase the amount of tax withheld by your employer, refer to
Tax Topic 753, Form
W-4, Employee's Withholding Allowance Certificate. For information
on estimated tax requirements, refer to Tax Topic
355 or Publication 505,
Tax Withholding and Estimated Tax.
I recently opened up a new account at the bank,
and they asked me to complete a Form W-9. Is this necessary?
Your investment income is generally not subject to regular withholding,
however, it may be subject to backup withholding to ensure that income
tax is collected on this income.
Under backup withholding, when you open up a new account you must
certify under penalties of perjury that your social security number is
correct and that you are not subject to backup withholding. Form W-9, Request
for Taxpayer Identification Number and Certification, is used to make
this certification. If you fail to make this certification on Form W-9,
or similar statement, backup withholding may begin immediately on your
new account, and 31% of the interest paid on your account will be withheld.
For additional information on who is subject to backup withholding, refer
to Tax Topic 307.
I have already filed my return and now I have
received another Form W-2. What can I do?
If you find that you did not report some income, you claimed deductions
or credits you should not have claimed, you failed to claim some deductions
or credits you are entitled to, or you should have used a different filing
status, you should file an amended return. The form you use to correct
the Form 1040, 1040A, or 1040EZ you already have filed is Form
1040X, Amended U.S. Individual Income Tax Return. Refer to Tax
Topic 308, Amended Returns, for additional information.
For additional information on when, where, and how to file, refer
to Tax Topic 301.
Who should I call to report someone who is
not filing tax returns?
If you believe someone is violating federal tax laws, you should
contact the IRS at 1-800-829-1040 for the Criminal Investigation Hotline
in your area. If you prefer, you may provide your information in writing
to your local IRS office, or the Criminal Investigation Branch at the service
center where you file your return. Refer to your tax package for the address
of your service center. Although you are not required to identify yourself,
it is helpful to do so. Your identity will be kept confidential. You may
also be entitled to a reward.
What is the difference between Form 8821 and
Form 2848?
Form 8821, Tax Information
Authorization, is used to authorize someone to receive confidential
tax information. Form 8821 cannot be used to name an individual to represent
you before the IRS. Form 2848,
Power of Attorney and Declaration of Representative, is used to
authorize the individual or individuals named to receive confidential tax
information and to represent you before the IRS.
Does a power of attorney stay in effect for
more than one year?
When you complete the Form 2848, Power of Attorney and Declaration
of Representative, you must show the type of tax, the tax form number,
and the year or period(s) for which the power is granted. You can list
returns for any number of specified years or periods that have already
ended and returns for years or periods that will end no later than three
years from the date the form is signed. A general reference to "all
years," "all periods," or "all taxes" is not acceptable.
The Form 2848 will be returned to you for correction if you use such general
references.
I forgot to mail my Form W-2, schedules or
forms with my tax return. What should I do?
Wait until the Internal Revenue Service requests the Form W- 2, schedules
or forms. The request will be made in writing within six weeks from the
date you mailed the return.
I just received my tax package in the mail.
Why are there so many forms and schedules in it?
We print several packages that include different forms and schedules
that may be filed with Form 1040.
We mail you the package that includes the items you may need based on what
you filed last year. We use packages instead of mailing forms and schedules
separately as a cost-saving measure for us and a convenience for you.
Do I have to file all the forms and schedules
that are in my tax package?
No. Complete and attach to your return only the forms and schedules
you need to report your income, deductions, and credits.
I'm concerned about the public debt. Can I
make a payment to reduce it?
Yes. If you wish to do so, enclose a separate check with your income
tax return. Make it payable to "Bureau of the Public Debt." You
can also send the check separately to: Bureau of the Public Debt, Department
G, Washington, DC 20239-0601. You may be able to deduct this contribution
on your next tax return if you itemize your deductions. Do not add your
contribution to any tax you may owe. If you owe tax, make a separate check
for that amount payable to "Internal Revenue Service."
How do I obtain copies of Revenue Rulings,
Revenue Procedures, and Internal Revenue Bulletins?
Contact the following:
Superintendent of Documents
U.S. Government Printing Office
P.O. Box 371954
Pittsburgh, PA 15250-7954
By voice: 202-512-1800
By modem (the Federal Bulletin Board): 202-512-1387
You can locate most recent Internal Revenue Bulletin Highlights by
visiting the Uncle Fed's IRS Bulletins,
and then print or download the Rulings and Procedures you need..
How would I obtain a private letter ruling?
If you are under examination, your request for a letter ruling should
be submitted under section 4.02 of Revenue Procedure 97-1 (including the
applicable user fee) to the examining or appeals officer. The examining
officer must then forward the request to national office.
If you are not under examination, submit the letter ruling request
(with applicable user fee) to:
Associate Chief Counsel (Domestic)
Internal Revenue Service
Attn: CC: DOM: CORP: T
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
See Revenue Procedure
99-1.
I had a large amount of income this year compared
to last year. Can I average the two years together?
Income averaging is no longer available. It was repealed by the Tax
Reform Act of 1986.
For IRS purposes, how do I classify a limited
liability corporation? Is it a corporation or a partnership?
A limited liability company (LLC) is an entity formed under state
law by filing articles of organization as an LLC. Unlike a partnership,
none of the members of an LLC are personally liable for its debts. An LLC
may be classified for Federal income tax purposes either as a partnership
or a corporation,depending on the specifics of your state's organizational
requirements.
What are the limits for 1998 for a 401K plan?
What are the limits for 1998 for other types of pension plans?
Section 415 of the Internal Revenue Code provides for dollar limitations
on benefits and contributions under qualified retirement plans. It also
requires that the Commissioner annually adjust these limits for cost-of-living
increases. Effective January 1, 1997, the limitation on the annual benefit
under a defined benefit plan under section 415(b)(1)(A) is increased from
$120,000 to $125,000. For participants who separated from service before
January 1, 1997, the limitation for defined benefit plans under section
415(b)(1)(B) is computed by multiplying the participant's compensation
limitation, as adjusted through 1996, by 1.0294. The limitation for defined
contribution plans under section 415(c)(1)(A) remains unchanged at $30,000.
Elective deferrals into a section 401(k) plan are limited to $10,000 inboth
calendar year 1998 and 1999.
Administrators of defined benefit or defined contribution plans that
have received favorable determination letters should not request new determination
letters solely because of yearly amendments to adjust maximum limitations
in the plans.
What is a Pure Trust?
The family estate trust, also known as the pure trust, involves the
transfer of an individual's personal, investment, and business assets,
and the assignment of the individual's lifetime services, to the trust.
The Service has ruled in Revenue Ruling 75-257, and the Tax Court and other
courts have held, that the income from these trusts is taxable to the transferor
under assignment of income principles, for salary and other compensation
paid to the trust attributable to the services of the transferor, and the
revocable trust rules, if the transferor has the power to revoke the trust,
including the right to terminate the trust pursuant to his role as trustee
or majority interest holder in the trust.
The grantors may also be taxed on the income from a family trust
because of their power to distribute income to themselves or their dependents
without consent of an adverse party. Negligence penalties are imposed on
taxpayers who attempt to avoid tax through the use of a family estate trust.
See Rev. Rul. 75-257, 1975-2 CB 251; Vercia v Commr, 73 TC 1246(1980);
Pfluger v Commr, 840 F2d 1379 (7th Cir 1988); IRC 677; Fergen v Commr,
TC Memo 1984-23
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