IRS Issues Rules for Providing K-1s Electronically

WASHINGTON — The IRS today issued guidance that now allows partnerships to provide Schedule K-1, Partner’s Share of Current Year Income, Deductions, Credits, and Other Items electronically to recipients. Certain entities, such as partnerships, are required annually to file K-1s with the IRS and provide a copy to their partners. The new rules can make it easier for partnerships to provide this necessary information to their partners, and will reduce the expense associated with printing and mailing K-1s to partners who elect to receive them electronically.

The guidance issued today is Revenue Procedure 2012-17, which provides rules describing when partnerships may provide K-1s electronically to partners. The partnership must receive the partner’s consent before providing K-1s electronically, instead of on paper. These new rules are similar to the rules governing the electronic furnishing of the 1099 and W-2s.

The revenue procedure addresses how the consent can be provided electronically — including secure e-mail and through the partnership’s internet page. The revenue procedure also addresses how partners are to be informed about changes in software, defines how the partnership is to provide instructions about accessing and printing electronic statements and the partnership’s responsibility if the K-1 is electronically undeliverable.

Generally, K-1s must be provided to recipients by the due date of Form 1065, U.S. Return of Partnership Income. For partnerships operating on a calendar year, the due date is April 17, 2012. The IRS estimates that partnerships filed almost 26 million K-1s during 2011.

Social Security Benefits

If a parent with a disabled child has the Social Security Administration determine that the child is disabled before that child is age 22, that child may qualify under the much more benificial amount of the parent’s Social Security and Medicare account.  Without this determination the child will fall back to the much less beneficial SSI and Medicaid coverage.

The Internal Revenue Service logged into its 2012 Tax Season on Tuesday (Jan. 17) when it started accepting e-filed – electronically filed – income tax returns.

Filing by computer has turned into the main event for the IRS. Last year, 77 percent of all returns from individual taxpayers were sent from computer keyboards. Many came from professional tax preparers, like EricJohn Ltd. They are equipped to both advise clients and to file their tax return.

Retirement Plan Contributions

• Simple IRA made per pay period
• 403(b)(7)/ Roth 403(b)(7) made per pay period
• 401(k)/ Roth 401(k) made per pay period
• Safe Harbor 401(k)/ Roth Safe Harbor 401(k) made per pay period
• Individual K/ Roth Individual K made per pay period

Businesses:

Monthly payroll deposits for January due February 15

Do you have a foreign bank account, own shares in foreign hedge fund, or hold any other foreign investment housed overseas which can be valued at $10,000 or more?  If so, the IRS & Department of Treasury require taxpayers to disclose certain information regarding this foreign activity via Form TDF-90.22 or potentially Form 8938 if the value is more than $50,000.

(Olsen, TC Summ. Op. 2011-131)

Facts and cirumstances:

Taxpayer received a K-1 from his mother-in-law’s estate.  Taxpayer was unfamiliar with this tax form.  The taxpayer entered the form K-1 data incorrectly into his tax software.  About a year later the taxpayer received an IRS matching notice for underpayment of tax along with an assessment of a 20% penalty (for substantial underpayment of tax).   Taxpayer appealed and court ruled that the mistake was isolated and that he acted in good faith.  Court ruled in favor of taxpayer, removing the 20% penalty.

* Planning note – Although this taxpayer’s notice was accurate, many IRS notices are issued in error and assess late or underpayment penalties.  Two lessons can be taken from todays blog: 1) Don’t just pay an IRS assessment of additional tax and penalties.  Many IRS CP2000 tax notices stating additionally tax assessment can be cleared up by simply sending the IRS proper documentation displaying the IRS’s or third party’s error.  2) Should you have made an honest error request the IRS or state agency to abate (remove) penalties .  50% of the time this actually works!

                                                                                                      – Eric J. Buechler, EA

Employer - Heli USA Airways payed dearly for not addressing an IRS (wage) levy on one of their employee’s overdue income taxes.  Tax Court ruled the employer is liable for the worker’s overdue taxes!  Additionally, the IRS added a 50% penalty for non-compliance.

The IRS launched a new app (IRS2Go) in 2011 for smartphones allowing users to check the status of their refunds.  The IRS app also provides tax tips and access to IRS news.

The 2012 Section 179 Deduction limit after adjustment for inflation has increased to $139,000

The 2012 Section 179 Deduction threshold for total amount of equipment that can be purchased has increased to $560,000.

The Section 179 Deduction is available for most new and used capital equipment, and also includes certain software.  Section 179 is limited by income.

The new law allows 50% “Bonus Depreciation” on qualified assets placed in service during 2012. However, this can be taken on new equipment only.  Bonus depreciation is not limited by income and is mandatory.  IRS requires businesses to make an election to “elect out” of this method.

* Planning Note – Sure, it is well known that businesses can save current year taxes by quickly depreciating assets.  This however, can be a double edged sword.  Depending on the business owner’s overall financial situation, an owner could very well eliminate valuable current year tax credits by electing to deduct too much depreciation along with potentially forgoing a larger future year tax deduction!   Please seek the advice of one of our tax advisors as careful planning is needed when choosing to Section 179 expense or depreciate property. 

                                                                                                      -  Eric J. Buechler, EA