IRS TWISTING ARMS TO REMOVE ELECTRONIC FILING FEES

If you are one of the brave ones that prepares and files your own federal income tax return, you probably use one of the commercial tax preparation software programs to assist you. When you are ready to file your tax return, the programs typically prompt you to file your tax return electronically. This is tempting because it avoids the need for printing out the return and mailing it to the IRS (including saving the postage), and for last minute filers it avoids waiting in line at the post office.

However, when you reach the point in the program to file electronically, if your income exceeds certain thresholds the program will charge you $15 to $30 extra. The IRS believes these fees are dissuading taxpayers from filing electronically. It would like more people to file electronically, since it avoids errors and reduces processing costs. Therefore, the IRS is trying to get the software companies to drop the filing fees.

It is estimated that $1 billion in electronic filing fees are collected each year, so giving up those fees will be costly for the software companies. While they still may do their patriotic duty and reduce or eliminate the filing fees, we shouldn't be surprised if the losses in fees are offset by increases in the prices for the software itself.

IRS CHANGES PUBLIC SUPPORT ADVANCE RULING PROCEDURES FOR SECTION 501(c)(3) ORANIZATIONS

Under the Internal Revenue Code, there are advantages for a Section 501(c)(3) organization to be classified as a "publicly supported" organization. To be "publicly supported," that organization must meet certain mathematical tests demonstrating a broad base of donor support (as compared to a small non-public pool of donors, such as a single family).

Previously, organizations that expect to meet the public support test would file a Form 1023 exemption application and seek a five year advance ruling. With such a ruling, the organization would generally be treated as publicly supported for its first five years. Then, it would need to submit a Form 8734 to show that its fundraising meets the publicly supported requirements, and if it did, the IRS would issue a final ruling establishing publicly supported status (or if it did not meet that status, it would be reclassified as a private foundation).

The IRS has now withdrawn the need to file a Form 8734 after 5 years. Instead, the taxpayer makes its own determination after 5 years, and if it meets the publicly supported requirements (and for so long as it does), it will report as a public charity without the need for a final determination by the IRS. The IRS will police the fulfillment of the public support requirement by new disclosures required on the Form 990 filings of the entity (assuming such a filing is required).

Note that if a public charity does not meet the public charity support requirements for two continuous years, it will lose its public charity status.

The IRS has issued a FAQ in question and answer format that address various transitional rules and other issues relating to the new reporting method.

09082008faq

INTEREST RATES FOR TAX OVERPAYMENTS AND UNDERPAYMENTS (OCTOBER 2008 QUARTER)

The IRS has announced the interest rates for tax overpayments and underpayments for the calendar quarter beginning October 1, 2008.

For noncorporate taxpayers, the rate for both underpayments and overpayments will be 6%.

For corporations, the overpayment rate will be 5%. Corporations will receive 3.5% for overpayments exceeding $10,000. The underpayment rate for corporations will be 6%, but will be 8% for large corporate underpayments.

Rev. Rul. 2008-47