PhillyTalk: Ask the Writers and Experts

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David Stewart

Ask David Stewart

Guest Host

David Stewart is the guest host for this forum.

He is the media relations specialist for the Internal Revenue Service for the state of Pennsylvania. Stewart, who received a master's degree from Temple University's Fox School of Business, works out of the Philadelphia offices at 600 Arch St. He has more than 20 years of experience as a spokesman and communicator for the federal government.

Ask about the IRS and federal income taxes. He and other IRS staff will answer as many questions as they can, but cannot answer them all. Responses do not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

Most Recent Questions & Answers

Questions: 41 - 10 of 105

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QAre clergy persons considered employees of a church or private contractors?

Anonymous, philadelphia, PA 07/12/07

Qcan a individual get income tax information on someone else, legally. such as ex-spouse who seems not to have filed in the last 20 years? if so, what web site could used?

amanda, fayetteville, , AR 07/11/07

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out Form 3949-A online, print it and mail it to:

Internal Revenue Service
Fresno, CA 93888

If you do not wish to use Form 3949-A, you may send a letter to the address above. Please include the following information, if available:

Name and address of the person you are reporting
The taxpayer identification number (social security number for an individual or employer identification number for a business)
A brief description of the alleged violation, including how you became aware of or obtained the information
The years involved
The estimated dollar amount of any unreported income
Your name, address and daytime telephone number

Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

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Need a Copy of Your Tax Return Information? (http://www.irs.gov/individuals/article/0,,id=110571,00.html)

Requesting transcripts (individuals):

You have two easy and convenient options for getting copies of your federal tax return information--tax return transcripts and tax account transcripts--by phone or by mail.

Request transcripts by calling 1-800-829-1040, or order by mail using IRS Form 4506T (Request for Transcript of Tax Return). We do not charge a fee for transcripts. Allow two weeks for delivery.

IRS.gov

David Stewart

QI am keeping a utma pa brokerage account for the benefit of my son (who will hopefully use the funds when he is of legal age for continued investment and real estate when he graduates from college) composed of mut fund (30%) and for500 stocks of 10 cos. I have dividends reinvested (total value today is $12k, was worth $9k when invested)I do not anticipate that the dividend income will exceed $2000 per annum (lucky to make $800). should I be keeping all of the records? What kind of effects will there be when he goes to cash out the funds? He is only 8 now.

Anonymous, PA 07/10/07

I think many financial planners would be quite pleased with the efforts you are making for your son. Regarding the record keeping... Well organized records will make it easier to prepare your tax return and will help you answer questions if your return is selected for examination, or prepare any response if you are billed for additional tax. Keep some records indefinitely, such as property records and investment records, especially those being held for long periods of time. You may need them to prove the amount of gain or loss when sold. For more information on record keeping requirements for individuals, order Publication 552 Record keeping for Individuals.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

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We realize that receiving a notice from the IRS can be unnerving, but if you follow some simple steps, the process to resolving the discrepancy should be straight forward. For more information on understanding your IRS notice please visit http://www.irs.gov/individuals/article/0,,id=96199,00.html.

IRS.gov

David Stewart

QIf you terminat a 401k plan with an employer at age 701/2 and never have taken a distribution before ...is there any special problems doing a roll-over of mutual funds to N ira AND RECEIVING THE company stock in a certificate?? Will I receive a separate 1099 for Stock and another for mutual funds..

moose, plymouth meeting, PA 07/10/07

I am a bit confused as you mention a 401(k) along with the 70 ½ age. The 70 ½ year-old age in general relates to IRAs and distributions.

Distributions from a 401(k) plan may qualify for optional lump–sum distribution treatment or rollover treatment as long as they meet the respective requirements. For more information, refer to Topic 412, Lump–Sum Distributions, Topic 413, Rollovers from Retirement Plans, and Topic 555, 10–Year Tax Option for Lump–Sum Distributions. You can find these Topics at http://www.irs.gov/taxtopics/tc424.html.

For your situation you may wish to contact the company to see how they are planning to terminate the 401 (k) program. Once you have that information you should consult a tax professional to see what options you may have available to you at that time.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

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Haven't Filed an Income Tax Return? Here's What to Do

File All Tax Returns

Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved.

IRS.gov

David Stewart

QMy husband is a statutory employee. He is a loan officer and did not receive a W-2 in 2006 since he had no income; however, he incurred some expenses. Can he deduct the loss?

Anonymous, MD 07/07/07

There appears as if there may be more issues, than the one above, involved with your tax circumstances. I would reccomend that you consult a tax professional.

Statutory employees report their wages, income, and allowable expenses on Schedule C (or Schedule C-EZ), Form 1040. Statutory employees are not liable for self-employment tax because their employers must treat them as employees for social security tax purposes.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

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IRS.gov

If you don’t receive your refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.
If Where’s My Refund? shows that IRS was unable to deliver your refund, you can change your address online.
Where’s My Refund? will prompt you when these features are available for your situation.

To get to your personal refund information, be ready to enter your:

Social Security Number (or IRS Individual Taxpayer Identification Number)
Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))
Exact refund amount shown on your return

David Stewart

QI have a piece of investment real estate I am about to sell to finance the purchase of a new primary residence. What tax rate applies to the capital gains on this sale, and is there any way to defer capital gains by investing in my new home?

Dave, high point, NC 07/06/07

Since I don't know all of the particulars of your situation I recommend you visit our web site IRS.gov and take a look at Publication 523 (http://www.irs.gov/publications/p523/ar02.html#d0e3638).

You may be able to exclude gain from the sale of a home that you have used for business or to produce rental income but you must meet the ownership and use tests. If you use property partly as a home and partly for business or to produce rental income, the treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it.

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Members of the public are receiving phony e-mails falsely claiming to come from the IRS. Take steps to protect yourself... visit IRS.gov... http://www.irs.gov/newsroom/article/0,,id=170894,00.html.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

David Stewart

Qthere is a lien on my house for state income taxes that were for a company my husband owned in '99 and 2000. We are unable to pay it and are wanting to sell our house to pay it off now that we have some equity built up. however, now the amount is much greater than it was --is there any way to get them to take a settlement?

Anonymous, PA 07/05/07

AI would recommend that you contact the State Department of Revenue (http://www.revenue.state.pa.us/) as the IRS is not involved in state income tax issues.

David Stewart

QAm i regarded as a statutory employee or independent contractor? My past employer i worked for withheld only state (CA) taxes for each pay period. They DID NOT withold federal, socical security, or medicare taxes from my pay. At the beginning of each new year, I receive the W-2 form from my employer. When it was time to do my taxes, I have to pay federal, ss, and medicare taxes for that previous year. I always considered myself an independent contractor, so i would always deduct my business expenses on schedule C. Now i found out, that my employer did not designate me as a "statutory employee" in their w -2 form and thus i cannot deduct expenses. I called them up and they say that i am not a statutory employee under so-called section 530. But they never withheld federal, social security, or medicare taxes from me during the year. They only withheld state (ca) taxes. So, given this situation, am i considered a statutory employee under FEDERAL law, or independent contractor? And can i still deduct business expenses on my schedule C since no federal, ss, or medicare taxes were withheld from my paycheck?

Anonymous, philadelphia, PA 07/02/07

Regarding the independent contractor issue please see the below. You may also wish to consult a tax professional regarding your specific circumstances.

Independent Contractors vs. Employees

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -

An independent contractor

A common-law employee

A statutory employee

A statutory nonemployee

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

David Stewart

Qmy sister and i own a condo that we purchased for an investment. we filed a partnership return for years. we now have decided to close the partnership. there was no money exchanged. how do you officially close the partnership.

mickey jc, media, PA 06/30/07

You can find excellent information about partnerships on our web site in Publication 541 http://www.irs.gov/publications/p541/ar02.html#d0e430. The information below is from Publication 541.

Terminating a Partnership

A partnership terminates when one of the following events takes place.

All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership.
At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner.

Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period.

See section 1.708-1(b) of the regulations for more information on the termination of a partnership. For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1.708-1(c) and 1.708-1(d) of the regulations.

Date of termination. The partnership's tax year ends on the date of termination. For the event described in (1), earlier, the date of termination is the date the partnership completes the winding up of its affairs. For the event described in (2), earlier, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits.

Short period return. If a partnership is terminated before the end of the tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. The return is due the 15th day of the fourth month following the date of termination. See Partnership Return (Form 1065), later, for information about filing Form 1065.

Conversion of partnership into limited liability company (LLC). The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. The conversion is not a sale, exchange, or liquidation of any partnership interest, the partnership's tax year does not close, and the LLC can continue to use the partnership's taxpayer identification number.

However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later.

The same rules apply if an LLC classified as a partnership is converted into a partnership.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

David Stewart

QI am active in a all volunteer sports organization that was approved for 501-c-3 tax-exempt status about 4 years ago. Due to personnel turnover we have never filed a tax return even though it looks like we should have based on >$25K in income per year. What should we do? Can we just file for 2006 now? Will there be a penalty

Worried in Willow Grove, Willow Grove, PA 06/29/07

If you do in fact have a filing requirment I would reccomend that you file Form 990. Since you mentioned that you have not filed you can review the below which is from the Form 990 Instructions under General Instructions Section K. You may also want to review Section I which covers extensions to file. Form 990 Instructions can be found at:

html version
http://www.irs.gov/instructions/i990-ez/index.html

PDF version
http://www.irs.gov/pub/irs-pdf/i990-ez.pdf

K. Failure to File Penalties

Against the Organization

Under section 6652(c)(1)(A), a penalty of $20 a day, not to exceed the smaller of $10,000 or 5% of the gross receipts of the organization for the year, may be charged when a return is filed late, unless the organization can show that the late filing was due to reasonable cause. Organizations with annual gross receipts exceeding $1 million are subject to a penalty of $100 for each day the failure continues (with a maximum penalty with respect to any one return of $50,000). The penalty begins on the due date for filing the Form 990 or Form 990-EZ.

The penalty may also be charged if the organization files an incomplete return. To avoid having to supply missing information later, be sure to complete all applicable line items; answer “Yes,” “No,” or “N/A” (not applicable) to each question on the return; make an entry (including a zero when appropriate) on all total lines; and enter “None” or “N/A” if an entire part does not apply.

Also, this penalty may be imposed if the organization's return contains incorrect information. For example, an organization that reports contributions net of related fundraising expenses may be subject to this penalty.

Use of a paid preparer does not relieve the organization of its responsibility to file a complete and accurate return.

Against Responsible Person(s)

If the organization does not file a complete return or does not furnish correct information, the IRS will send the organization a letter that includes a fixed time to fulfill these requirements. After that period expires, the person failing to comply will be charged a penalty of $10 a day. The maximum penalty on all persons for failures with respect to any one return shall not exceed $5,000 (section 6652(c)(1)(B)(ii)).

Any person who does not comply with the public inspection requirements, as discussed in General Instruction M, will be assessed a penalty of $20 for each day that inspection was not permitted, up to a maximum of $10,000 for each return. The penalties for failure to comply with the public inspection requirements for applications is the same as those for annual returns, except that the $10,000 limitation does not apply (sections 6652(c)(1)(C) and (D)). Any person who willfully fails to comply with the public inspection requirements for annual returns or exemption applications will be subject to an additional penalty of $5,000 (section 6685).

There are also penalties (fines and imprisonment) for willfully not filing returns and for filing fraudulent returns and statements with the IRS (sections 7203, 7206, and 7207). States may impose additional penalties for failure to meet their separate filing requirements. See also the discussion of the Trust Fund Recovery Penalty, under General Instruction D.

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This response does not represent a legal opinion from the IRS. To address your specific circumstances consult with a tax professional.

David Stewart

Questions: 41 - 10 of 105

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