You can appeal a federal tax lien if the following occured when it was filed. The law requires the IRS to notify you within 5 business days of a lien being filed. The IRS can give you this notice in person or leave it at your home or your usual place of business. The IRS can also send it by certified or registered mail to your last know address.
If you feel this was not done, you can ask an IRS manager to review your case. You can ask for a Collection Due Process hearing with the office of appeals by filing a request for a hearing with the office listed on your notice. There is a deadline to file for a request so check your notice for that date.
These are the issues you can discuss in your appeals hearing or with the IRS manager.
- You paid all your taxes before the IRS filed the lien
- The IRS assessed the tax and filed the lien while you were in bankruptcy. Bankruptcy puts you in a automatic stay of collections for that time period.
- The time to collect the tax, known as the statute of limitations, expired before the IRS filed the lien.
- You did not have time to dispute the assessed tax liability.
- You wish to discuss the collection options.
- You wish to make spousal defense.
When your Collection Due Process hearing is over, the IRS office of appeals with issue a determination. It will either support the lien filed or if the lien needs to be released or withdrawn. If you disagree with the determination, there is a 30 day period starting with the date of determination, in which you may request Judaical review in a court of proper jurisdiction.
Wednesday, January 21, 2009
Releasing a Federal Tax Lien
If you owe the IRS you may have a Federal Tax Lien filed against you. If you do, you can not sell your home unless you pay off your tax liability. You can get a copy of your lien in the county courthouse where you live, but the amount due will be out of date. You have to call the IRS and find out how much is owed currently because interest and penalties have been added to your balance.
You can sell your home if the money you make from the sale of you home is enough to full pay your tax liability. In most cases the only thing to do is to issue checks to the IRS for the taxes and the IRS will automatically release the lien in 30 days from the date the taxes are paid.
In the case that a lien discharge is needed for the title insurance company, you need to apply for a lien discharge with the IRS. Instructions for doing that are here. The really good news is that the IRS is helping to facilitate these discharges in weeks instead of months to help tax payers settle their back taxes.
If you need help with this find a knowledgeable real estate agent and a good tax resolution firm to help with the discharge. The tax firm can research all of your back taxes and help facilitate the discharge by talking with the IRS for you.
You can sell your home if the money you make from the sale of you home is enough to full pay your tax liability. In most cases the only thing to do is to issue checks to the IRS for the taxes and the IRS will automatically release the lien in 30 days from the date the taxes are paid.
In the case that a lien discharge is needed for the title insurance company, you need to apply for a lien discharge with the IRS. Instructions for doing that are here. The really good news is that the IRS is helping to facilitate these discharges in weeks instead of months to help tax payers settle their back taxes.
If you need help with this find a knowledgeable real estate agent and a good tax resolution firm to help with the discharge. The tax firm can research all of your back taxes and help facilitate the discharge by talking with the IRS for you.
Wednesday, January 14, 2009
How much do you know about your taxes?
In an article on April15.com, H & R Block did a survey of 1000 US Adults on how well they know their taxes. Many can not even answer basic tax questions. Almost 60% did not know the difference between and tax credit (which lowers your tax liability dollar for dollar) and a tax deduction (it lowers your liability by a percentage.
Location was cited as the most popular reason for picking a tax preparer, not how well a preparer was knowledgeable in tax law.
Most do not know which tax bracket they are in and 83% did not know they could go back and amend a tax return for the 3 prior years if errors were made in the return.
A tax payer should never prepare their own tax return. There is way too much involved with it. A simple calculation error or missing a credit or deduction can cost you money, time and a lot of hurt dealing with the IRS. Find a reputable tax preparer and get it done right.
Location was cited as the most popular reason for picking a tax preparer, not how well a preparer was knowledgeable in tax law.
Most do not know which tax bracket they are in and 83% did not know they could go back and amend a tax return for the 3 prior years if errors were made in the return.
A tax payer should never prepare their own tax return. There is way too much involved with it. A simple calculation error or missing a credit or deduction can cost you money, time and a lot of hurt dealing with the IRS. Find a reputable tax preparer and get it done right.
Monday, January 12, 2009
Tax Refund, Will I get mine if I owe?
As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.
Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.
You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
IRS will automatically apply the refund to the taxes owed.
If you owe taxes when you file and you can not pay the full amount, you can get help here.
Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.
You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
IRS will automatically apply the refund to the taxes owed.
If you owe taxes when you file and you can not pay the full amount, you can get help here.
Tax Credit for Adoption
The benefits for adopting a child have increased form 2007.
For 2008, the maximum adoption credit has increased to $11,650. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,650. These amounts are phased out if your modified adjusted gross income (MAGI) is between $174,730 and $214,730. You cannot claim the credit or exclusion if your MAGI is $214,730 or more.
For 2009, the maximum adoption credit has increased to $12,150. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $12,150. These amounts are phased out if your modified AGI is between $182,180 and $222,180. You cannot claim the credit or exclusion if your modified AGI is $222,180 or more.
This is good news for those who adopted children last year and plan to do so this year.
For more help on tax preperation and tax resolution find a good tax firm.
For 2008, the maximum adoption credit has increased to $11,650. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,650. These amounts are phased out if your modified adjusted gross income (MAGI) is between $174,730 and $214,730. You cannot claim the credit or exclusion if your MAGI is $214,730 or more.
For 2009, the maximum adoption credit has increased to $12,150. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $12,150. These amounts are phased out if your modified AGI is between $182,180 and $222,180. You cannot claim the credit or exclusion if your modified AGI is $222,180 or more.
This is good news for those who adopted children last year and plan to do so this year.
For more help on tax preperation and tax resolution find a good tax firm.
Don't Miss Out On Your Tax Credit
The IRS reminds us of tax dedutons we may be overlooking. Here is a list of a few that are taking by a lot of tax payers.
Tax credits can help pay the cost of raising a family, going to college, saving for retirement or getting daycare for dependents. But each year, many taxpayers overlook these credits, even though they often qualify for one or more.
While tax deductions and tax credits can both save money, they are fundamentally different. A deduction lowers the income on which the tax is figured, while a credit lowers the tax itself.
The popular credits listed below can help either lower a taxpayer’s bill or increase a refund.
First-Time Homebuyer Credit
Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps people who work but do not earn a lot. Working families with incomes below $41,646 and childless workers with incomes under $15,880 often qualify. Generally, you must have earned income as an employee, independent contractor, farmer or business owner to qualify. Taxpayers under the minimum retirement age who receive disability payments from an employer plan may also be eligible. The EITC Assistant, available in mid-January, can help you see if you qualify.
Child Tax Credit
A taxpayer who has a dependent child under age 17 probably qualifies for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2008 returns.
Credit for Child and Dependent Care Expenses
An individual who pays for someone to care for a child so he or she can work or look for work probably qualifies for the child and dependent care credit. Normally, the child must be the taxpayer’s dependent and under age 13. Though often referred to as the child care credit, this credit is also available to those who pay someone to care for a spouse or dependent, regardless of age, who is unable to care for him- or herself. In most cases, the care provider’s Social Security
Education Credits
The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, a taxpayer can claim both his or her own tuition and required enrollment fees, as well as those for a dependent’s college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. A taxpayer can also choose the lifetime learning credit, even if she is only taking one course. In some cases, however, she may do better by claiming the tuition and fees deduction, instead.
Saver’s Credit
The saver’s credit is designed to help low- and moderate-income workers save for retirement. A taxpayer probably qualifies if his income is below certain limits and he contributes to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are:
$26,500 for singles and married taxpayers filing separately
$39,750 for heads of household and
$53,000 for joint filers
Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. There is still time to put money into an IRA and get the saver’s credit on a 2008 return. 2008 IRA contributions can be made until April 15, 2009.
Other Credits Available
Recovery Rebate Credit, claimed on Form 1040 Line 70, Form 1040A Line 42 and Form 1040EZ Line 9. FS-2009-3 has further details
District of Columbia first-time homebuyer credit, claimed on Form 8859
Foreign tax credit, claimed on Form 1040 Line 47
Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
Adoption credit, claimed on Form 8839
Residential energy efficient property credit, claimed on Form 5695
Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
Credit for prior year minimum tax, claimed on Form 8801
Credits Save Taxpayers Money
These credits can increase a refund or reduce a tax bill. Usually, credits can only lower a tax liability to zero. But some credits, such as the EITC, the child tax credit, the Recovery Rebate Credit and the first-time homebuyer credit, are refundable –– in other words, they can make the difference between a balance due and a refund.
Although some credits are available to people at all income levels, others have income restrictions. These include the EITC, the Recovery Rebate Credit, the saver’s credit, the first-time homebuyer credit, the education credits and the child tax credit.
A taxpayer who qualifies can claim any credit, regardless of whether he or she itemizes deductions. Any credit can be claimed on Form 1040, sometimes referred to as “the long form.” Alternatively, many credits can also be claimed on the 1040A “short form.” The EITC and Recovery Rebate Credit can even be claimed on Form 1040EZ. The instruction booklet for each of these forms contains information about these and other tax credits.
Tax credits can help pay the cost of raising a family, going to college, saving for retirement or getting daycare for dependents. But each year, many taxpayers overlook these credits, even though they often qualify for one or more.
While tax deductions and tax credits can both save money, they are fundamentally different. A deduction lowers the income on which the tax is figured, while a credit lowers the tax itself.
The popular credits listed below can help either lower a taxpayer’s bill or increase a refund.
First-Time Homebuyer Credit
Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps people who work but do not earn a lot. Working families with incomes below $41,646 and childless workers with incomes under $15,880 often qualify. Generally, you must have earned income as an employee, independent contractor, farmer or business owner to qualify. Taxpayers under the minimum retirement age who receive disability payments from an employer plan may also be eligible. The EITC Assistant, available in mid-January, can help you see if you qualify.
Child Tax Credit
A taxpayer who has a dependent child under age 17 probably qualifies for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2008 returns.
Credit for Child and Dependent Care Expenses
An individual who pays for someone to care for a child so he or she can work or look for work probably qualifies for the child and dependent care credit. Normally, the child must be the taxpayer’s dependent and under age 13. Though often referred to as the child care credit, this credit is also available to those who pay someone to care for a spouse or dependent, regardless of age, who is unable to care for him- or herself. In most cases, the care provider’s Social Security
Education Credits
The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, a taxpayer can claim both his or her own tuition and required enrollment fees, as well as those for a dependent’s college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. A taxpayer can also choose the lifetime learning credit, even if she is only taking one course. In some cases, however, she may do better by claiming the tuition and fees deduction, instead.
Saver’s Credit
The saver’s credit is designed to help low- and moderate-income workers save for retirement. A taxpayer probably qualifies if his income is below certain limits and he contributes to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are:
$26,500 for singles and married taxpayers filing separately
$39,750 for heads of household and
$53,000 for joint filers
Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. There is still time to put money into an IRA and get the saver’s credit on a 2008 return. 2008 IRA contributions can be made until April 15, 2009.
Other Credits Available
Recovery Rebate Credit, claimed on Form 1040 Line 70, Form 1040A Line 42 and Form 1040EZ Line 9. FS-2009-3 has further details
District of Columbia first-time homebuyer credit, claimed on Form 8859
Foreign tax credit, claimed on Form 1040 Line 47
Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
Adoption credit, claimed on Form 8839
Residential energy efficient property credit, claimed on Form 5695
Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
Credit for prior year minimum tax, claimed on Form 8801
Credits Save Taxpayers Money
These credits can increase a refund or reduce a tax bill. Usually, credits can only lower a tax liability to zero. But some credits, such as the EITC, the child tax credit, the Recovery Rebate Credit and the first-time homebuyer credit, are refundable –– in other words, they can make the difference between a balance due and a refund.
Although some credits are available to people at all income levels, others have income restrictions. These include the EITC, the Recovery Rebate Credit, the saver’s credit, the first-time homebuyer credit, the education credits and the child tax credit.
A taxpayer who qualifies can claim any credit, regardless of whether he or she itemizes deductions. Any credit can be claimed on Form 1040, sometimes referred to as “the long form.” Alternatively, many credits can also be claimed on the 1040A “short form.” The EITC and Recovery Rebate Credit can even be claimed on Form 1040EZ. The instruction booklet for each of these forms contains information about these and other tax credits.
Keep Good IRS Tax Records
Keeping Good Tax Records
In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.
Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Publication 552, Recordkeeping for Individuals, provides more detailed information on individual record keeping requirements.
Publication 583, Starting a Business and Keeping Records,
and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses.
These publications can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). Actually, there is a wealth of free tax information on the IRS Web site. It’s not just about recordkeeping. Individuals and businesses can find answers to almost any question about federal taxes on the web site. Helpful links found at the top of the home page will take you directly to topics centered on Individuals, Businesses, Charities and Non-Profits, Government Entities, Tax Professionals, the Retirement Plan Community and Tax Exempt Bonds.
In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.
Fortunately, you don’t have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Publication 552, Recordkeeping for Individuals, provides more detailed information on individual record keeping requirements.
Publication 583, Starting a Business and Keeping Records,
and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses.
These publications can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). Actually, there is a wealth of free tax information on the IRS Web site. It’s not just about recordkeeping. Individuals and businesses can find answers to almost any question about federal taxes on the web site. Helpful links found at the top of the home page will take you directly to topics centered on Individuals, Businesses, Charities and Non-Profits, Government Entities, Tax Professionals, the Retirement Plan Community and Tax Exempt Bonds.
Saturday, January 10, 2009
Changing Your Business Structure
Changes in Organization or Ownership
If you already have an Employer Identification Number (EIN), you may need to get a new one if either the organization or ownership of your business changes. If you incorporate a sole proprietorship or form a partnership, you must get a new EIN. However, do not apply for a new EIN if:
You change only the name of your business
A partnership or corporation declares bankruptcy
A corporation chooses to be taxed as an S corporation
You elected on Form 8832 Entity Classification Election, to change the way the entity is taxed, or
You change the location or add locations
You elect to be taxed as an S corporation.
The above list is not all-inclusive. To find out when you should not apply for a new EIN, refer to Employer Identification Numbers (EIN) - Do You Need a New EIN?
Note: If you are electing to be an S corporation, be sure to file Form 2553, Election by a Small Business Corporation.
If you already have an Employer Identification Number (EIN), you may need to get a new one if either the organization or ownership of your business changes. If you incorporate a sole proprietorship or form a partnership, you must get a new EIN. However, do not apply for a new EIN if:
You change only the name of your business
A partnership or corporation declares bankruptcy
A corporation chooses to be taxed as an S corporation
You elected on Form 8832 Entity Classification Election, to change the way the entity is taxed, or
You change the location or add locations
You elect to be taxed as an S corporation.
The above list is not all-inclusive. To find out when you should not apply for a new EIN, refer to Employer Identification Numbers (EIN) - Do You Need a New EIN?
Note: If you are electing to be an S corporation, be sure to file Form 2553, Election by a Small Business Corporation.
Closing a Business Checklist
There are typical actions that are taken when closing a business.
You must file an annual return for the year you go out of business.
If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return.
If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business.
Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Checklist
Make final federal tax deposits
File final quarterly or annual employment tax form.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF)
Form 941, Employer's Quarterly Federal Tax Return (PDF)
Form 943, Employer's Annual Tax Return for Agricultural Employees (PDF)
Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)
Issue final wage and withholding information to employees
Form W-2, Wage and Tax Statement (PDF)
Report information from W-2s issued.
Form W-3, Transmittal of Income and Tax Statements (PDF)
File final tip income and allocated tips information return.
Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (PDF)
Report capital gains or losses.
Form 1040, U.S. Individual Income Tax Return (PDF)
Form 1065, U.S. Partnership Return of Income (PDF)
Form 1120 (Schedule D), Capital Gains and Losses (PDF)
Report partner's/shareholder's shares.
Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc. (PDF)
Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc. (PDF)
File final employee pension/benefit plan.
Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)
Issue payment information to sub-contractors.
Form 1099-MISC, Miscellaneous Income (PDF)
Report information from 1099s issued.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)
Report corporate dissolution or liquidation.
Form 966, Corporate Dissolution or Liquidation (PDF)
Consider allowing S corporation election to terminate.
Form 1120S, Instructions (PDF)
Report business asset sales.
Form 8594, Asset Acquisition Statement (PDF)
Report the sale or exchange of property used in your trade or business.
Form 4797, Sales of Business Property (PDF)
References/Related Topics
Canceling an EIN – Closing Your Account
Closing a Business
Contact local and state agencies.
There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business.
Publication 3207, The Small Business Resource Guide, provides help on closing a business and links to other relevant sources. Order a FREE CD-Rom via the web.
Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business.
You must file an annual return for the year you go out of business.
If you have employees, you must file the final employment tax returns, in addition to making final federal tax deposits of these taxes.
The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return.
If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.
You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business.
Below is a list of typical actions to take when closing a business, depending on your type of business structure:
Checklist
Make final federal tax deposits
File final quarterly or annual employment tax form.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return (PDF)
Form 941, Employer's Quarterly Federal Tax Return (PDF)
Form 943, Employer's Annual Tax Return for Agricultural Employees (PDF)
Form 943-A, Agricultural Employer's Record of Federal Tax Liability (PDF)
Issue final wage and withholding information to employees
Form W-2, Wage and Tax Statement (PDF)
Report information from W-2s issued.
Form W-3, Transmittal of Income and Tax Statements (PDF)
File final tip income and allocated tips information return.
Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (PDF)
Report capital gains or losses.
Form 1040, U.S. Individual Income Tax Return (PDF)
Form 1065, U.S. Partnership Return of Income (PDF)
Form 1120 (Schedule D), Capital Gains and Losses (PDF)
Report partner's/shareholder's shares.
Form 1065 (Schedule K-1), Partner's Share of Income, Credits, Deductions, etc. (PDF)
Form 1120S (Schedule K-1), Shareholder's Share of Income, Credits, Deductions, etc. (PDF)
File final employee pension/benefit plan.
Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)
Issue payment information to sub-contractors.
Form 1099-MISC, Miscellaneous Income (PDF)
Report information from 1099s issued.
Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)
Report corporate dissolution or liquidation.
Form 966, Corporate Dissolution or Liquidation (PDF)
Consider allowing S corporation election to terminate.
Form 1120S, Instructions (PDF)
Report business asset sales.
Form 8594, Asset Acquisition Statement (PDF)
Report the sale or exchange of property used in your trade or business.
Form 4797, Sales of Business Property (PDF)
References/Related Topics
Canceling an EIN – Closing Your Account
Closing a Business
Contact local and state agencies.
There may be requirements relating to state and local governments as well. You can use the State and Local Government on the Net to link to the state and/or local government(s) that apply to your business.
Publication 3207, The Small Business Resource Guide, provides help on closing a business and links to other relevant sources. Order a FREE CD-Rom via the web.
Visit the Small Business Administration (SBA) Web site for a map to help you locate the relevant SBA resources closest to you . The SBA also provides advice on closing a business.
Declaring Bankruptcy and Closing Your Business
Bankruptcy proceedings begin with the filing of a petition with the bankruptcy court. The filing of the petitions creates a bankruptcy estate, which generally consists of all the assets of the person filing the bankruptcy petition. A separate taxable entity is created if the bankruptcy petition is filed by an individual under chapter 7 or chapter 11 of the Bankruptcy Code.
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to.
This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide.
References/Related Topics
Closing a Business
The tax obligations of the person filing a bankruptcy petition (the debtor) vary depending on the bankruptcy chapter under which the petition was filed.
Generally, when a debt owed to another is canceled the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled is not income. However, the canceled debt reduces the amount of other tax benefits the debtor would otherwise be entitled to.
This information is not intended to cover bankruptcy law in general, or to provide detailed discussions of the tax rules for the more complex corporate bankruptcy reorganizations or other highly technical transactions. For additional tax information on bankruptcy, refer to Publication 908, Bankruptcy Tax Guide.
References/Related Topics
Closing a Business
Sale of Business
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
A business usually has many assets. When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss.
Publication 541, Partnership interests
An interest in a partnership or joint venture is treated as a capital asset when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. For more information, see Publication 541, Partnerships (PDF).
Publication 550, Corporation interests
Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss. For information on the sale of stock, see chapter 4 in Publication 550, Investment Income and Expenses (PDF).
Corporate liquidations
Corporate liquidations of property generally are treated as a sale or exchange. Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value.
In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. For more information, see Internal Revenue Code section 332 and its regulations.
Allocation of consideration paid for a business
The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred. This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
Consideration
The buyer's consideration is the cost of the assets acquired. The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets.
Residual method
The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code.
A group of assets constitutes a trade or business is either of the following applies.
Goodwill or going concern value could under any circumstances, attach to them.
The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code.
The residual method provides for the consideration to be reduced first by the cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposits). The consideration remaining after this reduction must be allocated among the various business assets in a certain order. To find out more about how to make the allocation among assets in proportion, refer to Publication 544, Sales and Other Dispositions of Assets.
References/Related Topics
Closing a Business
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.
A business usually has many assets. When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss.
Publication 541, Partnership interests
An interest in a partnership or joint venture is treated as a capital asset when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss. For more information, see Publication 541, Partnerships (PDF).
Publication 550, Corporation interests
Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss. For information on the sale of stock, see chapter 4 in Publication 550, Investment Income and Expenses (PDF).
Corporate liquidations
Corporate liquidations of property generally are treated as a sale or exchange. Gain or loss generally is recognized by the corporation on a liquidating sale of its assets. Gain or loss generally is recognized also on a liquidating distribution of assets as if the corporation sold the assets to the distributee at fair market value.
In certain cases in which the distributee is a corporation in control of the distributing corporation, the distribution may not be taxable. For more information, see Internal Revenue Code section 332 and its regulations.
Allocation of consideration paid for a business
The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset. Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred. This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
Consideration
The buyer's consideration is the cost of the assets acquired. The seller's consideration is the amount realized (money plus the fair market value of property received) from the sale of assets.
Residual method
The residual method must be used for any transfer of a group of assets that constitutes a trade or business and for which the buyer's basis is determined only by the amount paid for the assets. This applies to both direct and indirect transfers, such as the sale of a business or the sale of a partnership interest in which the basis of the buyer's share of the partnership assets is adjusted for the amount paid under section 743(b) of the Internal Revenue Code. Section 743(b) applies if a partnership has an election in effect under section 754 of the Internal Revenue Code.
A group of assets constitutes a trade or business is either of the following applies.
Goodwill or going concern value could under any circumstances, attach to them.
The use of the assets would constitute an active trade or business under section 355 of the Internal Revenue Code.
The residual method provides for the consideration to be reduced first by the cash and general deposit accounts (including checking and savings accounts but excluding certificates of deposits). The consideration remaining after this reduction must be allocated among the various business assets in a certain order. To find out more about how to make the allocation among assets in proportion, refer to Publication 544, Sales and Other Dispositions of Assets.
References/Related Topics
Closing a Business
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.
Terminating your Retirement Plan upon Business Closure
In this stage – Terminating – business owners go through the often-confusing process of shutting down a retirement plan.
This process includes:
Notifying participants
Notifying appropriate government agencies
Distributing plan assets
… and perhaps choosing a new plan.
FAQ's
Why is the IRS holding the money from my retirement plan now that the plan has terminated?
When a plan has formally terminated and submitted a Form 5310, Application for Determination for Terminating Plan, the Service will review the application in an expedient manner. However, on many occasions there are questions raised which need to be addressed before a favorable letter is issued. Also, the employer or trustee is not required to hold the assets until a favorable determination letter is issued, but usually will do so as a safety feature to ensure that distributions will receive the favorable tax treatment to which qualified plan distributions are entitled.
NOTE: The Service does not maintain or hold the assets during the termination process.
When are assets required to be distributed after a plan has terminated?
Generally, an employer is required to distribute assets from a terminated plan as soon as it is administratively feasible after the date of plan termination.
Whether distributions are made as soon as it is administratively feasible is determined under all the facts and circumstances of a given case, but generally the Internal Revenue Service views this to mean within one year after plan termination (see Rev. Rul. 89-87, 1989-2, C.B.
This process includes:
Notifying participants
Notifying appropriate government agencies
Distributing plan assets
… and perhaps choosing a new plan.
FAQ's
Why is the IRS holding the money from my retirement plan now that the plan has terminated?
When a plan has formally terminated and submitted a Form 5310, Application for Determination for Terminating Plan, the Service will review the application in an expedient manner. However, on many occasions there are questions raised which need to be addressed before a favorable letter is issued. Also, the employer or trustee is not required to hold the assets until a favorable determination letter is issued, but usually will do so as a safety feature to ensure that distributions will receive the favorable tax treatment to which qualified plan distributions are entitled.
NOTE: The Service does not maintain or hold the assets during the termination process.
When are assets required to be distributed after a plan has terminated?
Generally, an employer is required to distribute assets from a terminated plan as soon as it is administratively feasible after the date of plan termination.
Whether distributions are made as soon as it is administratively feasible is determined under all the facts and circumstances of a given case, but generally the Internal Revenue Service views this to mean within one year after plan termination (see Rev. Rul. 89-87, 1989-2, C.B.
Closing your Business
If you are closing your business and have an EIN number with the IRS, the process is more involved than just closing your business than just locking the doors.
This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.
5 things may occur with the closing of your business:
Changing Your Business Structure
Closing a Business Checklist
Declaring Bankruptcy
Sale of a Business
Terminating a Retirement Plan
The most important thing about closing a business is informing the IRS that it is closed and that no more filing requirements are needed. Making sure this is done can help you stay out of hot water. If the IRS thinks you still need to file tax returns, Forms 1065, 1120, 1120s, or employment returns, 941, 940, they will continue to pursue you for that information.
This section provides procedures for getting out of business, including what forms to file and how to handle additional revenue received or expenses you may incur.
5 things may occur with the closing of your business:
Changing Your Business Structure
Closing a Business Checklist
Declaring Bankruptcy
Sale of a Business
Terminating a Retirement Plan
The most important thing about closing a business is informing the IRS that it is closed and that no more filing requirements are needed. Making sure this is done can help you stay out of hot water. If the IRS thinks you still need to file tax returns, Forms 1065, 1120, 1120s, or employment returns, 941, 940, they will continue to pursue you for that information.
Friday, January 9, 2009
More IRS Help For Financially Distressed Taxpayers: Part 2
On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action. Contacting a reliable tax resolution firm can answer a lot of your questions and help you resolve your tax debt issues.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
Wednesday, January 7, 2009
IRS Help For Financially Distressed Taxpayers: Part 1
IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options
The Internal Revenue Service today kicked off the 2009 tax filing season by announcing a number of new steps to help financially distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations.
IRS Commissioner Doug Shulman encouraged taxpayers to take advantage of several new tax credits and deductions this filing season and announced a major enhancement to the Free File program that will allow nearly all taxpayers to e-file for free and accelerate their refunds.
“With so many people facing financial difficulties, we want taxpayers to get all the tax credits they’re entitled to as quickly as they can,” Shulman said. “In addition, we are creating new protections to help people trying to meet their tax obligations. The IRS will do everything it can to help during these tough times.”
Help for People Who Owe Taxes
With many people facing additional financial difficulties, the IRS is taking several additional steps to help people who owe back taxes.
“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today,” Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”
On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.
The IRS reminds taxpayers who are behind on tax payments and need assistance to contact the phone numbers listed on their IRS correspondence. There could be additional help available for these taxpayers facing unusual hardship situations.
Among the areas where the IRS can provide assistance:
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement. Taxpayers in a difficult financial situation should contact the IRS.
Further help may be found witha reliable tax resolution firm.
The Internal Revenue Service today kicked off the 2009 tax filing season by announcing a number of new steps to help financially distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations.
IRS Commissioner Doug Shulman encouraged taxpayers to take advantage of several new tax credits and deductions this filing season and announced a major enhancement to the Free File program that will allow nearly all taxpayers to e-file for free and accelerate their refunds.
“With so many people facing financial difficulties, we want taxpayers to get all the tax credits they’re entitled to as quickly as they can,” Shulman said. “In addition, we are creating new protections to help people trying to meet their tax obligations. The IRS will do everything it can to help during these tough times.”
Help for People Who Owe Taxes
With many people facing additional financial difficulties, the IRS is taking several additional steps to help people who owe back taxes.
“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today,” Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”
On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action.
The IRS reminds taxpayers who are behind on tax payments and need assistance to contact the phone numbers listed on their IRS correspondence. There could be additional help available for these taxpayers facing unusual hardship situations.
Among the areas where the IRS can provide assistance:
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement. Taxpayers in a difficult financial situation should contact the IRS.
Further help may be found witha reliable tax resolution firm.
Tuesday, January 6, 2009
IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell
The Internal Revenue Service announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.
If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.
The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.
“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.
“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”
Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.
In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.
If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.
The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.
“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.
“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”
Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.
In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.
Questions about the stimulus rebate from the IRS
Questions and Answers about the Recovery Rebate Credit
The following are answers to some basic questions regarding the recovery rebate credit. Check back periodically for updates and additional questions and answers that may be added.
Basic information
Q. What is the recovery rebate credit?
A. This credit is a new refundable credit that is related to the 2008 economic stimulus payment. Generally, a credit increases the amount of a refund or reduces the amount of taxes owed. Those who did not receive their economic stimulus payment (or did not receive what they were fully entitled to) in 2008 are eligible for the credit.
Q. What is the basis of the recovery rebate credit calculation?
A. The recovery rebate credit is calculated the same way and with the same requirements as the 2008 economic stimulus payment. The only difference is that the credit is based on the tax year 2008 income tax return and the stimulus payment was based on the tax year 2007 income tax return.
Qualifying for the rebate
Q. Who is eligible?
A. Those who were eligible for the stimulus payment but did not receive it (or did not receive what they were fully entitled to) in 2008 are eligible for the credit. Also eligible for the credit are those who did not meet the requirements for the stimulus payment last year but whose circumstances have since changed, causing them to now meet the requirements.
Q. Why doesn’t everyone qualify for the rebate?
A. Most taxpayers have already received their full benefit in advance in the form of the 2008 economic stimulus payment. However, if certain conditions changed for taxpayers in 2008, they may be eligible for an additional benefit.
Q: How will the recovery rebate credit payments be made?
A: The Treasury won't send out separate economic stimulus payments for 2009. Instead, those eligible will claim the rebate credit on their 2008 returns. Credits generally increase the amount of a refund or reduce the amount of taxes owed.
Q. I was claimed as a dependent on my parents’ 2007 tax return, and was not eligible for the stimulus payment, but I lived on my own in 2008. Do I qualify for the rebate?
A. That depends on whether you can be claimed as a dependent on your parents' 2008 return. The rebate is based on circumstances that occurred in 2008, while the stimulus payment was based on the 2007 tax return filing information. You'll have to use the tax booklet's worksheet on claiming the recovery rebate credit to see if you're eligible to claim it.
Claiming the credit
Q. How do I claim the recovery rebate credit?
A. Use the recovery rebate worksheet that is found in your 2008 tax booklet to figure the credit you can take, if any. Then, include that figure in the payments section of your 2008 tax return.
Q. How do I get help figuring the credit?
A. The IRS will figure the credit for you, if you enter “recovery rebate credit” next to line 70 on your Form 1040 (line 42 of Form 1040A; line 9 of Form 1040EZ). You can also access the online recovery rebate tools using the recovery rebate credit link on this Web site. For taxpayers filing electronically, the software will calculate any credit they may be due.
Q. What info do I need to figure the credit?
A. If you received your 2008 economic stimulus payment, you will need to know how much you received. The IRS sent Notice 1378, Economic Stimulus Payment Notice, to taxpayers who received a payment, showing the amount received. If you don’t have your notice, you can use the online tool How Much Was My 2008 Stimulus Payment?.
Q. What tools are available to help figure the credit?
A. The IRS will post interactive tools on this Web site to help figure the Recovery Rebate Credit: the Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?. The 2008 tax packages also include a worksheet to help figure the credit.
Q. When can I expect to receive my rebate?
A. The rebate is part of your 2008 income tax refund. The amount you receive for the recovery rebate credit will be included as part of your refund, as shown on your tax return. Unlike the stimulus payment, it will not be issued as a separate check. You can check the status of your refund under Where’s My Refund?. Generally, you will receive your refund within 6–8 weeks after you file your return.
Q. I am not required to file a tax return, but I still would like to get the rebate. How do I claim the rebate?
A. You must file a tax form to claim the credit, and be sure to fill in lines 7, 20a and 70 of your Form 1040 (lines 7, 14a and 42 of Form 1040A; lines 7 and 9 of Form 1040EZ).
Q. Because the IRS applied part of my stimulus payment to an outstanding debt, I actually received less than the total amount as stated on my Notice 1378. What amount should I use when figuring my credit?
A. You must use the total amount — the amount before the deduction to satisfy the debt — as stated on your Notice 1378. That total is considered to be the amount of your stimulus payment, even though part of it was used to satisfy a debt. The recovery rebate credit must be reduced by the amount of your 2008 stimulus payment.
Economic stimulus payments received
Q. Do I have to claim my stimulus payment as income on my 2008 income tax return?
A. No, the stimulus payment is not reportable as income on your 2008 income tax return.
Q. My stimulus payment was more than what the worksheet calculates my recovery rebate credit to be. Does this mean I will have to pay the difference?
A. No, you do not need to repay the difference, and the difference will not affect your return. However, your recovery rebate credit will be zero.
Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return.
Q. I have no earned income and no filing requirement, but I filed a 2007 economic stimulus payment return to get the payment. Do I have to file a 2008 tax return?
A. If you received your stimulus payment, no. If you did not receive the stimulus payment, and do not pay income tax but have at least $3,000 in qualifying income for 2008, then you should file a 2008 tax return to receive the recovery rebate credit.
The following are answers to some basic questions regarding the recovery rebate credit. Check back periodically for updates and additional questions and answers that may be added.
Basic information
Q. What is the recovery rebate credit?
A. This credit is a new refundable credit that is related to the 2008 economic stimulus payment. Generally, a credit increases the amount of a refund or reduces the amount of taxes owed. Those who did not receive their economic stimulus payment (or did not receive what they were fully entitled to) in 2008 are eligible for the credit.
Q. What is the basis of the recovery rebate credit calculation?
A. The recovery rebate credit is calculated the same way and with the same requirements as the 2008 economic stimulus payment. The only difference is that the credit is based on the tax year 2008 income tax return and the stimulus payment was based on the tax year 2007 income tax return.
Qualifying for the rebate
Q. Who is eligible?
A. Those who were eligible for the stimulus payment but did not receive it (or did not receive what they were fully entitled to) in 2008 are eligible for the credit. Also eligible for the credit are those who did not meet the requirements for the stimulus payment last year but whose circumstances have since changed, causing them to now meet the requirements.
Q. Why doesn’t everyone qualify for the rebate?
A. Most taxpayers have already received their full benefit in advance in the form of the 2008 economic stimulus payment. However, if certain conditions changed for taxpayers in 2008, they may be eligible for an additional benefit.
Q: How will the recovery rebate credit payments be made?
A: The Treasury won't send out separate economic stimulus payments for 2009. Instead, those eligible will claim the rebate credit on their 2008 returns. Credits generally increase the amount of a refund or reduce the amount of taxes owed.
Q. I was claimed as a dependent on my parents’ 2007 tax return, and was not eligible for the stimulus payment, but I lived on my own in 2008. Do I qualify for the rebate?
A. That depends on whether you can be claimed as a dependent on your parents' 2008 return. The rebate is based on circumstances that occurred in 2008, while the stimulus payment was based on the 2007 tax return filing information. You'll have to use the tax booklet's worksheet on claiming the recovery rebate credit to see if you're eligible to claim it.
Claiming the credit
Q. How do I claim the recovery rebate credit?
A. Use the recovery rebate worksheet that is found in your 2008 tax booklet to figure the credit you can take, if any. Then, include that figure in the payments section of your 2008 tax return.
Q. How do I get help figuring the credit?
A. The IRS will figure the credit for you, if you enter “recovery rebate credit” next to line 70 on your Form 1040 (line 42 of Form 1040A; line 9 of Form 1040EZ). You can also access the online recovery rebate tools using the recovery rebate credit link on this Web site. For taxpayers filing electronically, the software will calculate any credit they may be due.
Q. What info do I need to figure the credit?
A. If you received your 2008 economic stimulus payment, you will need to know how much you received. The IRS sent Notice 1378, Economic Stimulus Payment Notice, to taxpayers who received a payment, showing the amount received. If you don’t have your notice, you can use the online tool How Much Was My 2008 Stimulus Payment?.
Q. What tools are available to help figure the credit?
A. The IRS will post interactive tools on this Web site to help figure the Recovery Rebate Credit: the Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?. The 2008 tax packages also include a worksheet to help figure the credit.
Q. When can I expect to receive my rebate?
A. The rebate is part of your 2008 income tax refund. The amount you receive for the recovery rebate credit will be included as part of your refund, as shown on your tax return. Unlike the stimulus payment, it will not be issued as a separate check. You can check the status of your refund under Where’s My Refund?. Generally, you will receive your refund within 6–8 weeks after you file your return.
Q. I am not required to file a tax return, but I still would like to get the rebate. How do I claim the rebate?
A. You must file a tax form to claim the credit, and be sure to fill in lines 7, 20a and 70 of your Form 1040 (lines 7, 14a and 42 of Form 1040A; lines 7 and 9 of Form 1040EZ).
Q. Because the IRS applied part of my stimulus payment to an outstanding debt, I actually received less than the total amount as stated on my Notice 1378. What amount should I use when figuring my credit?
A. You must use the total amount — the amount before the deduction to satisfy the debt — as stated on your Notice 1378. That total is considered to be the amount of your stimulus payment, even though part of it was used to satisfy a debt. The recovery rebate credit must be reduced by the amount of your 2008 stimulus payment.
Economic stimulus payments received
Q. Do I have to claim my stimulus payment as income on my 2008 income tax return?
A. No, the stimulus payment is not reportable as income on your 2008 income tax return.
Q. My stimulus payment was more than what the worksheet calculates my recovery rebate credit to be. Does this mean I will have to pay the difference?
A. No, you do not need to repay the difference, and the difference will not affect your return. However, your recovery rebate credit will be zero.
Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return.
Q. I have no earned income and no filing requirement, but I filed a 2007 economic stimulus payment return to get the payment. Do I have to file a 2008 tax return?
A. If you received your stimulus payment, no. If you did not receive the stimulus payment, and do not pay income tax but have at least $3,000 in qualifying income for 2008, then you should file a 2008 tax return to receive the recovery rebate credit.
IRS Stimulus Check Recovery
The recovery rebate credit is a one-time benefit for people who didn't receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion.
Generally, a credit adds to the amount of a tax refund or decreases the amount of taxes owed. Therefore, the amount you receive for the recovery rebate credit will be included as part of your refund, as shown on your tax return. Unlike the 2008 economic stimulus payment, it will not be issued as a separate check.
You May Be Eligible
People who fall into the categories described below may be eligible for the recovery rebate credit this year:
Individuals who did not receive an economic stimulus payment.
Those who received less than the maximum economic stimulus payment in 2008 — $600 per taxpayer; $1,200 if married filing jointly — because their qualifying or gross income was either too high or too low.
Families who gained an additional qualifying child in 2008.
Individuals who could be claimed as a dependent on someone else’s tax return in 2007, but who cannot be claimed as a dependent on another return in 2008.
Individuals who did not have a valid Social Security number in 2007 but who did receive one in 2008.
How to Get the Recovery Rebate Credit
You need to claim the recovery rebate credit on Form 1040, 1040A or 1040EZ. The instructions for these forms will show you which lines to use. Unlike the economic stimulus payment, the recovery rebate credit will be included in your tax refund for 2008 and will not be issued as a separate payment.
The IRS Will Figure the Credit for You in Most Cases
You can choose to let the IRS do the work when you file your 2008 Form 1040, 1040A or 1040EZ. If you're filing on paper, simply follow the line-by-line instructions to choose this option. If you're filing electronically, the software will figure the credit for you.
Or You Can Figure It Yourself
Likewise, you can figure and claim the recovery rebate credit on your 2008 Form 1040, 1040A or 1040EZ. Two interactive online tools will be available to help you with the calculation, the Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?
The Recovery Rebate Credit Calculator will help you figure the amount you should claim on your 2008 tax return. Or, you can use the worksheet in the Form 1040 instruction booklet to help you figure your credit by hand. To use the Recovery Rebate Credit Calculator or complete the worksheet, you'll need the amount of the economic stimulus payment you received in 2008, if any. This amount was provided on Notice 1378, Economic Stimulus Payment Notice, sent by the IRS to taxpayers who received a payment.
You can use How Much Was My 2008 Stimulus Payment? to determine the amount you already received, if you don’t have or didn't receive Notice 1378.
If you still have some questions you can try the question and answer page.
For more information check out the Economic Stimulus Payment Information Center.
For help with tax liabilities check out this web site.
Generally, a credit adds to the amount of a tax refund or decreases the amount of taxes owed. Therefore, the amount you receive for the recovery rebate credit will be included as part of your refund, as shown on your tax return. Unlike the 2008 economic stimulus payment, it will not be issued as a separate check.
You May Be Eligible
People who fall into the categories described below may be eligible for the recovery rebate credit this year:
Individuals who did not receive an economic stimulus payment.
Those who received less than the maximum economic stimulus payment in 2008 — $600 per taxpayer; $1,200 if married filing jointly — because their qualifying or gross income was either too high or too low.
Families who gained an additional qualifying child in 2008.
Individuals who could be claimed as a dependent on someone else’s tax return in 2007, but who cannot be claimed as a dependent on another return in 2008.
Individuals who did not have a valid Social Security number in 2007 but who did receive one in 2008.
How to Get the Recovery Rebate Credit
You need to claim the recovery rebate credit on Form 1040, 1040A or 1040EZ. The instructions for these forms will show you which lines to use. Unlike the economic stimulus payment, the recovery rebate credit will be included in your tax refund for 2008 and will not be issued as a separate payment.
The IRS Will Figure the Credit for You in Most Cases
You can choose to let the IRS do the work when you file your 2008 Form 1040, 1040A or 1040EZ. If you're filing on paper, simply follow the line-by-line instructions to choose this option. If you're filing electronically, the software will figure the credit for you.
Or You Can Figure It Yourself
Likewise, you can figure and claim the recovery rebate credit on your 2008 Form 1040, 1040A or 1040EZ. Two interactive online tools will be available to help you with the calculation, the Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?
The Recovery Rebate Credit Calculator will help you figure the amount you should claim on your 2008 tax return. Or, you can use the worksheet in the Form 1040 instruction booklet to help you figure your credit by hand. To use the Recovery Rebate Credit Calculator or complete the worksheet, you'll need the amount of the economic stimulus payment you received in 2008, if any. This amount was provided on Notice 1378, Economic Stimulus Payment Notice, sent by the IRS to taxpayers who received a payment.
You can use How Much Was My 2008 Stimulus Payment? to determine the amount you already received, if you don’t have or didn't receive Notice 1378.
If you still have some questions you can try the question and answer page.
For more information check out the Economic Stimulus Payment Information Center.
For help with tax liabilities check out this web site.
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