Accounting Today - February 2012

president of Liberty Tax Service. “So our vol-
ume is a little higher than last year at the same
point in the filing season.”
Although the number of banks offering re-
fund anticipation loans has declined, Liberty
currently offers them in 44 states. “We offer
state-sanctioned consumer loan products in
the other six states,” Hewitt explained.

Some corporate forms were released a bit
late, pointed out Mark Luscombe, principal
analyst at CCH, a Wolters Kluwer business.
“There was some concern that it was causing
some problems with some filers.”
There are a number of changes for the
2012 filing season that impact conversations
between taxpayers and their preparers, Lus-
combe explained. “Those who did Roth con-
versions in 2010 had the option to spread the
tax between 2011 and 2012,” he said. “This is
the first year to pick up taxes on the conver-
sions, and some people won’t necessarily re-
member that something they did in 2010 will
affect the returns they file in 2012.”
For 2010 conversions, only half of the re-
sulting income must be included in income
in tax year 2011, and the other half is reported
in 2012 (on 2013 returns), unless the taxpayer
elected to include all of it in income for 2010.
For conversions made in 2011, all of the in-
come resulting from the conversion must be
reported on the 2011 return.

FORM CHANGES

“There were a couple of changes to basis re-
porting that will impact returns,” Luscombe
said. “Form 1099-B has been revised to show
the broker reporting of basis, so taxpayers
have to make sure that what they report on
Schedule D and on Form 8949 conforms with
what’s being reported to the IRS on Form
1099-B.”
Form 8949, a new form, is used to report
capital gain and loss transactions. Schedule
D, the form traditionally used to show these
individual transactions, is now used as a
summary sheet, reporting amounts for to-
tal sales price, basis and other adjustments.
For securities both bought and sold in 2011,
Form 1099-B will show the basis, according
to the IRS.

Another new form, Form 8938, is for reporting foreign financial assets, Luscombe said. “This is the first year that this reporting has been required,” he noted. FBAR —Form TD F 90-22.1, which has been around for several decades — is a separate filing requirement. Unlike the FBAR form, Form 8938 is attached to a taxpayer’s income tax return, and individuals who do not have an income tax return filing requirement do not have to file it.

Although the employee retention credit
was a 2010 hiring issue, the newly hired
employees had to be retained for 50 weeks,
Luscombe noted. “Therefore it’s in 2011 that
people would claim the credit,” he said.

SURPRISE-FREE

A result of the failure of Congress to pass any extenders legislation was that there were no eleventh-hour surprises at the start of this year’s filing season, said Bob Scharin, senior tax analyst at the Tax & Accounting business of Thomson Reuters.

“The two-month extension of the payroll
tax cut does raise some filing questions in
terms of payroll tax returns of employers
when filing the first quarter,” he said. “In
terms of income tax, it raises the question
of what to advise clients who pay estimated
taxes for 2012, because certain expiring tax
provisions were not extended. Chief among
them was the Alternative Minimum Tax
patch. And when you’re completing some-
one’s 2011 return, you need to tell the client
what amount of estimated tax to pay for 2012.
The problem is that Congress has not taken
up extenders legislation, so we don’t know
what the AMT exemption will be, as well as
some other tax breaks.”
“The practitioner has the problem of not
knowing what the AMT exemption is for
2012,” he continued, “so it makes it hard to
know what the taxpayer will owe for 2012 and
what the estimated tax payment should be.”
Scharin noted that numbers from past re-
turns would play a greater role on 2011 re-
turns. In addition to 2010 Roth conversions,
energy credits need to be scrutinized, he said.
“The maximum amount of the credit for 2011
is $500, but that has to be reduced by any non-
business-entity credit claimed since 2006, so
return preparers need to look at past returns
to determine how much of a credit, if any, the
client is eligible for this year.”
The credit generally equals 10 percent
(down from 30 percent the past two years)
of what a homeowner spends on eligible en-
ergy-saving improvements, up to the $500
maximum (down from the $1,500 combined
limit that applied for 2009 and 2010). In ad-
dition, the energy standards are increased for
most property — windows, exterior doors and
skylights, for example, must meet Energy Star
Program requirements.

Those who claimed the First-Time Home-
buyer Credit in 2008 got an interest-free loan
that needs to be repaid in 15 installments be-
ginning with their 2010 return, said Scharin.
“So now, they need to look back and see how
much the credit needs to be recaptured or
repaid on their 2011 returns.”
Then there’s the question of the taxability
of a state income tax refund, Scharin noted.
“The answer depends on whether the client
received a tax benefit when the refunded
amount was originally paid,” he said. “If they
got a refund of a 2010 state overpayment and
itemized deductions in 2010, then part or all
of the refund would be taxable, but if they
claimed the standard deduction in 2010, then
the refund would not be taxable. The compu-
tation is more complex for those who paid
AMT in 2010. The bottom line is they need to
look at their 2010 return in order to determine
the taxability of the refund.”

GREATER PLANNING

Many of the early filers this tax season are par-
ents who need the information from the re-
turn to apply for scholarships, student loans,
and various education tax benefits, said Larry
Novick, a Holliston, Mass.-based preparer.
“My big push will come in the middle of Feb-
ruary when the Form 1099s come out. My cli-
ents who owe the government won’t come in
until the end of March or in October.”
Taxpayers are more fiscally conscious as a
result of the economic downturn, according
to Sandra Robb, a Kent, Wash.-based prepar-
er. “Most of them are planning ahead, and
calling to get a list of what documents they
need to bring,” she said. “When they’re here,
they want to discuss the latest tax law changes
to make sure they’ve maximized their deduc-
tions. This has not been the case in previous
years. In a way, it makes the job more fun,
because we get to strategize with them to get
to the lowest dollar amount they owe in tax.”
Robb is using a Western Union debit card to
replace the RALs she formerly offered clients.
“For those without a checking account, it al-
lows their refund to be deposited directly to
the debit card, with no extra fees,” she said.

“Because of the later deadline for Form 1099s, April 17 will come a lot more quickly,” said Linda de Marlor, president of Rockville, Md.-based Tax-Masters Inc. “And we’ll probably do more extensions,” she added.

“A lot of our clients are foreign, so we’re paying special attention to the reporting requirements if they own anything outside of the country,” she said. “In many cases, their parents put their name on the account and they’re not aware of the responsibility to report it, or the penalty if they don’t report it. I ask them if they could walk into the bank today and take money out of the account, even if mommy and daddy are still alive. If they say, ‘ Yes,’ it has to be reported.” AT