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Individual Income Tax Returns Due Tuesday, April 17, 2007January 26, 2007IRS SAYS INDIVIDUAL INCOME TAX RETURNS DUE TUESDAY, APRIL 17, 2007 IRS issued Information Release 2007-15 January 24, 2007 providing that individuals have until April 17, 2007 to file their 2006 returns and pay any taxes due. The reason for the extension is that April 15, the regular filing deadline, falls on a Sunday in 2007, and the following day, April 16, is Emancipation Day, a recently enacted legal holiday in the District of Columbia. IRS pointed out in the Information Release that most forms and publications for the current tax filing season went to print, before they realized returns were due April 17, 2007, rather than April 16, 2007. REVIEW OF RULES FOR TELEPHONE EXCISE TAX REFUNDS IRS issued Notice 2006-50 on May 25, 2006 explaining that taxpayers should claim a refundable credit on their 2006 tax returns for telephone excise taxes paid during the 41 month period from March 1, 2003 through July 31, 2006 on long-distance charges or "bundled charges". Please see Fax No. 155 issued June 1, 2006 for a summary of Notice 2006-50. Safe Harbor For Individuals (IR-2006-137). On August 31, 2006, IRS issued Information Release 2006-137 explaining that individuals may choose to claim "safe-harbor" refund amounts rather than calculating the actual excise taxes paid during this 41 month period. The safe-harbor amounts are based upon the number of personal exemptions claimed on an individual's income tax return. The amounts are $30 for one exemption; $40 for two exemptions; $50 for three exemptions; and $60 for four or more exemptions. Although interest is normally paid on the excise tax refunds, IRS says no interest is paid on these safe-harbor refund amounts. Safe Harbor For Businesses And Tax Exempts (IR-2006-179). On November 26, 2006, IRS issued Information Release 2006-179 providing a formula that businesses and tax exempt organizations may elect to use to "estimate" the amount of the excise tax credit rather than determining the actual excise taxes paid on long-distance and bundled charges from March 1, 2003 through July 31, 2006. The estimated refund amount under IR-2006-179 is determined by using the April, 2006 and September, 2006 telephone bills. First, the total excise tax on the April, 2006 bill (or bills if more than one telephone) is divided by the total of the bill (including excise taxes). The result is a percentage amount for the April bill. Next, the total excise tax on the September bill (or bills if more than one telephone) is divided by the total of the bill (including excise taxes). The result is a percentage amount for the September bill. Then, the percentage for the September bill (where no excise tax should have been charged on long-distance calls or bundled charges) is subtracted from the percentage for the April bill (where excise taxes should have been charged on all calls). Finally, the resulting percentage (not to exceed 2% if taxpayer has 250 or fewer employees for the June, 2006 quarter or 1% if taxpayer has more than 250 employees for the June, 2006 quarter) is multiplied by the total of the taxpayer's telephone bills for the period from March 1, 2003 through July 31, 2006 to determine the excise tax credit. Please see Notice 2007-11 (discussed below) for examples of the above calculation. In addition, the Form 8913 instructions provide a worksheet for calculating the excise tax credit using the above formula. Note! To use the estimation method outlined above, IRS says taxpayers must use their telephone bills for April and September of 2006. If taxpayers were not in existence or did not pay for telephone service in April and September, they may not use the estimate safe harbor. Additional Explanation Of Refundable Credit For Telephone Excise Taxes (Notice 2007-11). On December 29, 2006, the IRS issued Notice 2007-11 further clarifying the rules for claiming the refundable excise tax credit on 2006 returns. For example, the notice further clarifies the definition of "bundled services" and "local-only" services. In addition, the Notice explains the treatment of excise taxes paid on prepaid telephone cards. The Notice also clarifies that the IRS does not require telecommunications providers to supply billing records to their customers. Notice 2007-11 also provides several examples of using the formula for estimating the refundable excise tax credit for businesses and tax exempts outlined in Information Release 2006-179. Taxpayers Not Otherwise Required To File Income Tax Returns. Individuals that are not required to file an income tax return for 2006, should claim the excise tax credit using Form 1040EZ-T. Tax exempt organizations not required to file Form 990, should claim the excise tax credit using Form 990-T. For example, it appears that churches obtain a refund for the telephone excise tax by filing Form 990-T. Form 8913. Form 8913 is used to calculate the excise tax credit for taxpayers other than individuals using the individual safe-harbor method. In addition, the instructions to Form 8913 explain the various methods for calculating the credit. Form 8913 and the instructions are available at the IRS web site. NEW PENSION PROTECTION ACT RECORDKEEPING REQUIREMENTS FOR CHARITABLE CONTRIBUTIONS Beginning with 2007 tax years, the Pension Protection Act of 2006 removes the ability of taxpayers to deduct contributions, even amounts less than $250, without adequate documentation. Effective for contributions made in tax years beginning after August 17, 2006, in order to deduct a charitable contribution made in cash, by check, or by other monetary means, the contribution must be supported by 1) a bank record (e.g., a cancelled check), or 2) a receipt, letter or other written communication from the charity showing the name of the donee organization, the date of the contribution, and the amount of the contribution. Therefore, beginning in 2007, the Pension Protection Act no longer allows the use of "other reliable written records" to substantiate charitable contribution deductions. Note! The documentation rules for charitable contributions of $250 or more have not changed. For these contributions, we are required to have a qualifying receipt by the time the tax return is filed. It may be a good idea to discuss these new substantiation rules with clients when you go over their 2006 individual income tax return information. In particular, it would be a good idea to remind them not to contribute cash unless they obtain a receipt or the amount will not be deductible on their 2007 income tax return. |
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