By GeorGe G. Jones and Mark a. LuscoMBe
What’s new for the
2011 filing season?
Year-end planning is now behind us. Many believe that the failure of the joint congressional committee to
reach a deficit reduction agreement pushes
fundamental tax reform off at least until after
the 2012 elections. Some tax changes are still
possible with respect to jobs promotion and
extending expiring provisions, but those efforts will be primarily focused on 2012. So,
what do we know now about what is new for
the 2011 tax return filing season?
E-FILING MANDATE
Most tax preparers have already shifted to
e-filing by now, but the mandatory e-filing requirements keep increasing. For tax year 2011
returns filed in 2012, a return preparer must
e-file if they are filing 11 or more returns. This
is lower than the 100 returns for the last filing
season. Clients may instruct the preparer in
writing that they want to opt out of e-filing.
Also, a return preparer can apply to opt out
due to hardship by filing Form 8944.
BROKER REPORTING OF BASIS
Form 1099-B has been revised to provide for
brokers to report the basis of transactions
during the year. This information should
match the basis reported on the return. Although brokers this year are only required to
report basis for transactions involving stock
sales where the stock was acquired after Jan.
1, 2011, and only if the broker or a predecessor broker handled the acquisition, it is
possible that brokers will report more basis
information on the 1099-B than they are technically required to report. These transactions
will also no longer be reported directly on
Schedule D, but on Form 8949, a new supporting form for Schedule D.
CREDIT CARD/MERCHANT PAYMENTS
Form 1099-K is now required to be filed by
payment settlement entities, such as credit
card processors and online payment proces-
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA,
is principal analyst, at CCH Tax and Accounting, a Wolters Kluwer business.
sors, reporting payments made. There is a de
minimis reporting exception for total payments of less than $20,000 or fewer than 200
transactions. The reports will generally be
made of gross payments, so adjustments for
fees, chargebacks and returns may have to
be explained to account for any differences
from the amounts reported on the Form
1099-K. Your clients will probably want to
start keeping track of these adjustments in
separate accounts so that they can verify the
gross payment information reported on the
Form 1099-K and trace the adjustments.
Clients may
request to
opt out of
e-filing.
New lines have been added for Forms 1040
Schedules C, E and F; Form 1065; and Forms
1120 and 1120S to reflect the information
from the Form 1099-K. A merchant that fails
to provide a federal employer identification
number or Social Security number to the processor or fails to pay the tax may be subject to
back-up withholding.
FATCA REPORTING
In addition to the prior obligation to report foreign accounts on Form TDF90-22.1
(FBAR), a new Form 8938 will require foreign
assets to be reported if those assets have a
total value of more than $50,000 ($100,000
if married filing jointly). Foreign assets have
a broader definition than the FBAR reporting of foreign accounts, and include stock or
securities issued by someone other than a
U. S. “person,” any interest in a foreign entity,
and any financial instrument or contract that
has an issuer or counterparty other than a
U.S. “person.” Failure to report foreign assets
also comes with a separate set of penalties
from those associated with failure to make
FBAR reports.
2010 ROTH CONVERSIONS
Clients who did Roth conversions in 2010 and
elected to spread the tax over 2011 and 2012
will have to report half of the tax on the conversion on their 2011 tax returns. Tax on any
additional conversions done in 2011 will also
have to be included on the 2011 tax return.
These could have been conversions from a
traditional IRA to a Roth IRA, or conversions
from a 401(k) or 403(b) plan account to a Roth
account within those plans. Distributions of
those Roth conversion amounts during 2011
could result in some acceleration of the portion of the tax that would normally have been
deferred until 2012.
FORM 8939 AND INHERITED ASSETS
Practitioners this year may encounter clients
who have received a Form 8939 from an executor of an estate of which the client is an
heir, reporting the carryover basis of those
inherited assets where the estate elected 2010
estate tax repeal. This will provide the basis
information should the heir have sold those
inherited assets in 2011 or in the future. Practitioners might also suggest that clients obtain
the backup support from the executor of the
estate, spelling out how that basis determination was made, in the event that the client is
ever audited by the IRS on the tax reported on
the sale of those inherited assets.
EMPLOYEE RETENTION CREDIT
Although the employee retention credit was
related to 2010 hiring, it required retaining
the employee for at least 52 weeks to qualify
for the credit, moving eligibility for the credit
to 2011 tax returns. Eligibility for the credit
also restricted wage reductions during the
last 26 weeks of the 52-week period. The
credit is claimed on Form 5884-B and is the
lesser of $1,000 or 6. 2 percent of the retained
worker’s wages during the period.
FORM W- 2 REPORTING
Although it is only optional for Form W-2s
issued in 2012 (it will be mandatory in 2013)
some employees may receive W-2s for 2011
that for the first time in Box 12 include a code
(DD) and amount for employer-sponsored
health care coverage. This new requirement
is part of the health care reform that is de-
signed to provide the IRS with information
to determine if the employer and employee
have complied with the mandates of that leg-
islation. Since those mandates are not yet in
effect for 2011, such additional information
on the W- 2 should not have an effect on 2011
tax return filing requirements.
FIRST-TIME HOMEBUYER CREDIT
The repayment of the First-Time Homebuyer
Credit from 2008 is not new for 2011 tax returns, but it does have a new line on the Form
1040, Line 59b. The repayment installment
can be entered directly on Line 59b without
the use of Form 5405 if the taxpayer continued to own the home and use it as their main
home throughout 2011.
The other main change to the Form 1040
for 2011 is that there is no longer a line for
the Making Work Pay Credit, which expired
at the end of 2010.
PREPARER REGISTRATION
Paid return preparers who were required
to obtain a Paid Preparer Tax Identification
Number were required to renew that P TIN for
the current filing season. The IRS has also put
in place a new testing requirement applicable
to paid preparers other than attorneys, CPAs
and enrolled agents. Paid return preparers
can take the exam now and have until Dec.
31, 2013, to pass it. There is no restriction
on the number of times a preparer can take
the exam. The initial exam is based on 2010
return information, and some professional
organizations have suggested holding off taking the exam until it is revised to reflect 2011
tax return information.
SUMMARY
On the whole, the 2011 tax return filing season does not seem to be complicated by too
many changes from the prior season. With
increasing calls for fundamental tax reform
and growing demand to address the federal
deficits, however, this may be the last tax filing season about which we will be able to say
that for a while. AT
